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What if I don't have the security to borrow from a bank?
by Simon Clarke, TaxAssist Accountants
In my previous article, I mentioned how banks are generally keen to lend to potential franchisees because of the industry's good track record. The recent so-called credit crunch and problems with bank liquidity has meant that they are all looking for safer forms of lending. Fortunately, franchising fits the bill.
The banks are also keen to lend even in situations where security may be an issue. The government-backed Small Firms Loan Guarantee (SFLG) was mentioned in the 2008 Budget and the rules surrounding it have been relaxed, enabling more people to be eligible. Banks are rushing to promote the scheme and you should expect to see a lot of deals involving the scheme coming from the banks soon.
What is the SFLG scheme and what improvements have recently been announced?
The Department for Trade and Industry (DTI), which administered the scheme, has changed its name to the Department for Business, Enterprise and Regulatory Reform (BERR), but the Small Firms Loans Guarantee Scheme (SFLG) has kept its name.
It was established to offer help to small and medium-sized businesses under five years of age that may be unable to obtain a conventional loan because they do not have assets to offer as security. A franchisee, who is married, but whose partner does not wish to put the house up as security, may also be able to take advantage of the scheme.
TaxAssist Accountants has a number of franchisees who have benefited from the scheme. We require all our franchisees to submit a detailed business plan before they join us, and this can be used to take to the banks to arrange finance through the scheme. The bank will then liaise with the relevant government department to make a decision, based on the franchise and the applicant.
75 per cent guarantee
The main features of the scheme are that the government offers a guarantee to the lender, covering 75 per cent of the loan amount for which the borrower pays a two per cent premium on the outstanding balance. Loans of up to £250,000 with a term of up to 10 years will be considered.
The scheme has in the past been limited to certain industries and companies under five years old. However, recent Budget changes have extended this to include all businesses.
The official quote from the government on the changes stated: “The Government proposes to increase the banks SFLG lending allocations by 20 per cent for the next year. This will increase the amount of lending available by £60 million to a total of £360 million providing greater SFLG capacity at a time when financial market disruption may require the provision of debt finance to young and growing SMEs to be strengthened.
“In line with its renewed commitment to assist firms with growth ambitions, the Government will extend the eligibility of SFLG to businesses with growth ambitions that are more than five years old, including, but not limited to, those that have changed ownership.”
What action should I take? If you are a franchisor, you should ensure your potential franchisees are aware of the scheme so that they are not put off joining you because they perceive that they don't have the relevant security to borrow against.
If you are a franchisee, you may like to consider this route if you are unable to put up the required security and the bank won't lend to you unsecured. As ever, you should take legal advice to ensure your own personal position is best protected.
For more information on TaxAssist’s franchise management solutions for both franchisors and franchisees, and its unique direct debit collection schemes for small businesses, or to contact your local branch go to www.taxassist.co.uk or call 0800 052 3555.
If you are interested in becoming a franchisee, call 0800 018 8297 or visit www.taxassist.net
- Simon Clarke is finance and technical director of TaxAssist Accountants, a franchised network of more than 160 branches specialising in serving small businesses and franchisees. TaxAssist has developed a wide range of financial planning, and controlling and reporting tools for franchisors to encourage their franchisees to take financial matters seriously from day one.
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