How to Manage Subsidised Loans as a Small Business

Find out about how to boost your eligibility for a subsidised loan and where to find further help and advice

How to Manage Subsidised Loans as a Small Business

Obtaining a loan as a small business is notoriously tricky as many don’t have the valuable assets needed to provide security for a bank.

Subsidised loan schemes like the government’s Enterprise Finance Guarantee (EFG) scheme could provide just the lifeline you need to obtain finance when it is difficult to come by elsewhere.

This guide includes:

  • A guide to the subsidised and guaranteed loan schemes available in the UK
  • Information about the Enterprise Finance Guarantee scheme
  • How you can find a local or bank-supported loan guarantee scheme elsewhere
  • Tips on how to boost your eligibility for a subsidised loan
  • Where to go for further help and advice

What is the Enterprise Finance Guarantee scheme and does my business qualify?

The Enterprise Finance Guarantee (EFG) scheme is delivered by the British Business Bank, the government’s economic development bank, and is is designed to boost bank lending to small businesses by underwriting 75% of a small business bank loan and reducing the risk undertaken by the bank.

Eligibility for EFG is determined on a case-by-case basis. Initial uptake of the scheme amongst banks was disappointing, but there are signs this is changing.

To qualify for an EFG loan your business should: Have annual revenues of £41m or less, operate in the UK, be seeking an amount between £1,000 and £1.2m, accept repayment terms of between 3 months and 10 years and Operate in a sector which is eligible for EFG (in practice, this is most sectors).

In exchange for the government underwriting your loan, you must pay an additional 2% annual premium on repayments, a levy which is designed to partially cover the cost of EFG. You should be aware that lenders can still insist on additional security for the remaining 25% of the loan – including, potentially, a personal guarantee – so it is by no means risk free finance.

You can find a guide to the loan application process here, along with a list of approved EFG lenders here. Click here for detailed guidance on the business sectors that qualify for EFG.

What can I access EFG finance for?

You can access EFG finance to meet a variety of needs including New term loans if you need to bolster your working capital or invest in a new project (these loans are unsecured or partially secured), or to refinance an existing loan by taking out a new one to boost your cashflow.

EFG is also useful if you are facing a shortfall in your working capital and want to convert an overdraft into a long-term loan to provide you with more financial flexibility. If you already use some kind of invoice finance facility, you could use it as an invoice finance guarantee to secure an additional debtor book advance from your existing provider – these are available for terms of up to three years.

Another option is to provide a guarantee on a new or existing overdraft, allowing you to keep the facility for short-term finance needs. You might seek an EFG-backed overdraft if you don’t meet the requirements for a loan but the lender considers you to be a viable business.

Where can I go for more help on the EFG scheme?

The Startups’ guide to the Enterprise Finance Guarantee is an easy to understand guide that goes into more detail about the EFG scheme and its requirements.

Alternatively, the British Business Bank’s guide to the Enterprise Finance Guarantee is a one stop for companies wishing for more detail on the scheme, including links to policies and further guidance.

Is my business likely to qualify for other schemes?

Various other subsidised loan schemes exist in the UK, normally with the ancillary aim of promoting some wider purpose. They are generally divided into three distinct purposes.

Primarily, many subsidised loan schemes were formed with the purpose of creating jobs, so if you plan to make new hires using loan finance, then you are much more likely to find a subsidised loan scheme that fits.

Other subsidised loan schemes are available for businesses based in or looking to invest in low-income or economically deprived areas, such as the Regional Growth Fund.

Another purpose is to boost particular sectors: certain industries benefit from subsidised loan schemes intended to promote their growth more generally (green energy is one sector that particularly benefits).

Most schemes require you to put up some of your money or provide additional security for loans so be aware you will need at least some capital to invest for the vast majority of schemes. You can use the government’s online finance finder tool to find details of shcemes.

What subsidised loan schemes are available in Wales, Scotland and Northern Ireland?

You can obtain loans of up to £25,000 as a small Welsh business with high growth potential from Finance Wales, although business-to-consumer (B2C) businesses are not generally eligible.

West of Scotland Loan Fund and East of Scotland Investment Fund can provide loans of up to £50,000 for eligible businesses. Check the websites for more information.

Finally, the Scottish Loan Fund is intended for larger businesses with turnover of £1m or more that are looking for loans upwards of £250,000 or more.

How do I apply for a subsidised or guaranteed loan?

There are three ways to apply for a subsidised or guaranteed loan.

The first is a bank-operated scheme such as the Enterprise Finance Guarantee, which you apply for the same way apply for a bank loan. Check your bank’s website for an application form.

You can also use local schemes, which are generally approved through a single-stage paper application process. Your local business support organisation may be able to help you find subsidised loans in your area.

Regional or national schemes are usually more complex than local scheme application procedures – most use a two-stage application process.

Who do I contact for further help and advice?

You can use the government’s online finance finder to help you find subsidised loans and grants that apply to your business or loan consultants, which can offer expert help on preparing loan applications – worth the outlay if you want to obtain larger amounts of finance.

Local business support organisations may be able to advise you on local subsidised and guaranteed loan schemes. Search the web for organisations in your area. Better Business Finance offers another online tool to find private finance providers.

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