Member Article

Need to know: National Loan Guarantee Scheme

Emmanouil Schizas guides you through all you need to know about applying for a loan under the National Loan Guarantee Scheme

Last month the government announced the National Loan Guarantee Scheme, but what do you have to do to apply for finance under this new scheme.

The first thing to do is make sure that you qualify, it sounds obvious but there maybe something you’ve neglected to check. While it’s always best to check with individual lenders, the criteria for the scheme are relatively simple. First, you must have a business with less than £50m turnover; if your business is
part of a group, the threshold applied to the whole group. Yours must be a UK-based business and must not be in financial difficulty. Depending on who you bank with, your loan

Currently Barclays, Bank of Scotland, Lloyds TSB, Natwest, RBS and Santander have agree to offer loans under the scheme, with Aldermore agreeing in principle. The banks can choose to leave the scheme and other banks may wish to join but at present these are the only banks offering guaranteed facilities.

Not all business loans will be covered by the scheme so make sure you check with your bank before applying. Refinancing of existing facilities where the term or amount has changed is also permitted; in this case term must be a minimum of one year. As a rule, any loan over £25,000 is eligible but some banks will also process smaller loans; Barclays, for instance, will consider loans over £10,000; RBS will consider all loans, effectively agreeing to lose money on smaller facilities. Stay tuned though as these thresholds could be reviewed in future.

Under the scheme banks are able to offer interest discounts of 1 percentage point on new term loans, hire purchase and leasing agreements. Barclays is an exception here: they have decided to provide an equivalent cashback offer equal to the present value of all the money a 1% discount would have saved
their customers.

You can register your interest in a loan with one of the participating banks and they will consider the applications in due course. It is important to remember however that while this is a government backed scheme, the government is not guaranteeing loans to businesses. Borrowers still remain liable for the repayments and usual lending criteria will still apply, including any need for security, such as personal guarantee.

The scheme is able to provide up to £20 billion of guarantees on unsecured bank debt. This will enable participating banks to borrow at a cheaper rate, and these banks are required to pass on the entire benefit they receive from these guarantees to small businesses through cheaper loans.

This was posted in Bdaily's Members' News section by Ray Allger .