Independent Banking Advisory Service 

Small Firms Loan Guarantee Scheme (SFLGS) & EFG

SFLGS and EFG borrowers are more at risk than most small businesses borrowing bank money - because the bank overseeing their scheme will have a debentures in place and these provide the bank with great power in any decision making on funds and future funding for the business.

It is well worth any small business seeking (or indeed already involved in) an SFLGS or EFG to properly read their copy of the debenture document, so that they are aware just how much control the bank has over the business. However, SFLGS borrowing is now beeing run down as the EFG scheme takes over. However, EFG delays in processing applications, and less chance of approval appeasr to be following the pattern of the SFLGS, which means that customers may have to rethink their business plan and also it's viability in the current climate.

IBAS believe that an application for a Small Firms Loan Guarantee Scheme or SFLGS or EFG requires a ‘buyer beware’ notice. IBAS experience of business complaints from the Government’s Small Firms Loan Guarantee Scheme (SFLGS) over the last 19 years shows that this scheme has created considerable difficulties for small firms borrowing funds. This is particularly evident in new (or ‘start-up’) businesses and an area where some Lenders appear much less reliable. EFG appears to be a recycled SFLG.

Mail IBAS for help

IBAS is the most experienced organization in this field with almost 20 years 'track record' in Banking cases and resolving Director's Personal Guarantee issues. Our aim is to provide the best professional and personal Banking and Personal Guarantee advice service to protect our members at a low and affordable annual membership. IBAS offers specialist and individual Banking and Personal Guarantee advice and assistance and will assess your personal position to establish how your banking dispute or Personal Guarantee may impact upon you and also your family. Our first action is always to protect your personal position and prevent it being compromised further, by any ill advised actions with regard to the banking dispute or Personal Guarantee you have already signed.

IBAS early advice on Personal Guarantees, Personal Guarantee debt claims, Bank Guarantees, Personal Bank Joint Guarantees, Personal guarantees and Indemnity, Personal Guarantees for SFLGS - prevents costly mistakes and even greater risk of losing the marital home from ill informed actions.

Financial Times Rhyme of the credit-hungry entrepreneurs - The new Enterprise Finance Guarantee and how the SFLGS became a nightmare for some small businesses. “There are a lot of sleights of hand that the small businessman may not understand,” says Eddy Weatherill of the Independent Banking Advisory Service, a membership body, “the SFLG has been consistently abused.”

Find our 2012 national newspaper comments (plus many more over many years in the News and archives sections of our site) - prove that IBAS can be relied upon and has been helping business bank customers with their personal guarantees and personal guarantees debt 'calls' and debt claim and demands since 1992. IBAS has also featured in BBC TV and ITV News items and programmes on UK banking and business banking issues many times since we were established in 1992.

Often, Lenders appear less concerned with the quality of the information they provide to the company once they’ve provided the lending decision and also sealed their debenture in place.

From our experience there is no doubt that companies become frustrated by the Lender’s lack of response and are also frustrated by the lack of professional care and general business experience and assistance with this product.

IBAS believes internal problems may create Lender’s maladministration of SFLGS accounts and that this will then also ‘cloud’ that Lender’s judgment and create serious delays in the Lender responding when the Company requests information at crucial or critical times.

When a company is in this position it has great difficulty in operating the business, having expended considerable time (and usually all their own spare funds) in reaching that stage. These companies borrowing by way of a SFLGS are particularly vulnerable to lender inertia and certain Lenders are much less reliable than others. Borrowing on a SFLGS is not a ‘level playing field’ and these Lenders are the lenders to avoid - if you know who they are!

IBAS has found that in these SFLGS cases it is the Lender’s control over the assets of the Company which restricts and often completely eliminates any new ideas for funding or indeed any other form of alternative funding.

This remains the case even though the Lender has reached a point where they are no longer prepared (sometimes completely unwilling) to further support the Company or indeed commit funds to provide any ongoing support.

The nature of the SFLGS is that the scheme is designed to provide financial backing with some financial support to those who do not have the necessary assets to borrow ‘against’ but do have a workable or worthwhile business plan (or project).

The Lender support their understanding of the Business Plan by their confirmation of the application, which itself is supported by the DTI in a Guarantee against 75% of the funds being provided by the Lender.

The Lender’s desire to lend is assessed against the Business Plan and strength of management. Personal assets and/or personal security are not intended to be a major consideration. The strength of the Business Plan at the beginning of this process is therefore the most important consideration and the Business Plan itself must be carefully considered by the Lender in detail.

Once the Lender has investigated the financial strengths of the Business Plan and made the decision to lend - that commitment carries with it a considerable duty to provide professional care in the handling of that account (not only to the Customer but also to the DTI) as from that time onwards the Lender by holding a full debenture over the Company will inevitably control the Company assets and indeed the Company’s financial strategy in any future or further borrowing requirements.

However, from our experience IBAS cannot be sure that the Lenders ‘commitment’ to either the customer borrowers who are using the SFLGS or indeed the DTI who guarantee those funds is of the quality necessary, or that the SFLGS is supervised effectively by sources outside the Lenders themselves (or the EFG).

IBAS are concerned that we have seen cases where Lenders deliberately delay in providing crucial information. This prevents a Company making essential financial decisions and any Lender would be aware from previous experience that such a Company would be largely unsuccessful in gaining another lenders support to ‘pick-up’ a SFLGS at that stage. This is another Lender that should be avoided at all cost as they may also take additional security, wherever possible - adding to the cost of failure - but again how will the borrowers be aware?

By forcing failure on a Company in a SFLGS the Lender is better protected from exposure of any maladministration/s. There is a limited ‘timeframe’ prior to liquidation and then the debenture holder (Lender) effectively controls all assets (which would of course include any possible legal claim by the ‘company’ at that time against the Lender). This also remains the case with EFG loans.

Ultimately, this means a Lender can conceal maladministration from the DTI and cover their own losses against the SFLGS by calling on the DTI Guarantee after forcing failure on a Company borrowing by way of a SFLGS or EFG.

Of course, when a SFLGS/EFG fails there may be a small loss to the Lender (as seen in the Graham Review - although initially the major loss will be to the DTI (from the Guarantee which they provided to the Lender).

However, a much greater loss may be felt by those borrowing on a SFLGS which fails. If they are company directors of the failed company and the lender has Personal Guarantees for the company borrowings as they may be at personal risk from insolvency. The Lender will chase for payment on behalf of the DTI (from the SFLGS Guarantee itself) regardless of the fact that the Lender will have been paid. The SFLGS documentation will state that:

The Government guarantees 75% of the outstanding amount due to the lender. The Government will pay this to the lender if the borrower fails to repay. However, the borrower remains liable and recovery of the full debt will be sought - possibly through liquidation.

Where Personal Guarantees have also been provided to the Lender for a SFLGS or EFG, which then failed this PG can provide the Lender with an opportunity for a ‘double’ claim. 

The lender has the discretion, within the terms of any agreements on security, to apply the proceeds from any business assets to reduce the guaranteed loan. If proceeds are insufficient to cover the guaranteed loan and other debts, then any personal assets or guarantees pledged against non-Scheme lending would be used to reduce the other debts. If the borrower has business assets, such as stock or premises, that have been taken as security against the loan, the lender will use these to reduce the outstanding debt. This will enable the lender to reduce its claim on the DTI's guarantee or to reimburse the DTI if it has already paid a claim.

On top of the possibility of personal insolvency there is also ‘flotsam’ from the business failure for the borrowers to deal with. The failure of a SFLGS may be enough to ‘taint’ any entrepreneur’s faith in their own judgment or their own business ability but the SFLGS failure may also prevent the failed entrepreneurs from accessing any future bank borrowing.

If you're presently contemplating an Enterprise Finance Guarantee it is not the quality of your business plan which should concern you most but whether the proposition you are seeking to borrow against is really 100% viable. Your proposal should not be overly optimistic but realistically priced (with a sensible margin allowed for error) so that it can truly survive any possible delays in initial funding, lack of banking expertise, lack of Enterprise Finance Guarantee knowledge and also the possibility of opportunistic bankers subverting the scheme for their own purposes and taking personal guarantees to plunder the individuals - later if required - as we are seeing now - see Business Banking Solutions

It is worthwhile to establish if there is any other way of funding your business proposition and then exhaust all other potential possibilities first - before contemplating a business ‘start up’ using the Enterprise Finance Guarantee - as the risks appear to be considerable once the Lender has their Debenture in place.