Neil Mahoney, regional director for Lloyds TSB Commercial in London & East England, answers our questions about the National Loan Guarantee Scheme
Q. The NLGS will offer cheaper finance, about one per cent less than average interest rates. Will this finance be easier to access though?
Through the National Loan Guarantee Scheme we will be able to offer our customers a reduction in the cost of finance and we hope this will help cashflow and cut overheads for small firms, which are facing rising costs on many fronts. NLGS discounts can apply on new term loans, leasing arrangements and hire purchase. The best bit about the scheme is that it has been designed to boost demand and encourage investment which is vital to the economic recovery.
Businesses will remain subject to the banks’ usual lending criteria, as the government is guaranteeing the banks’ financing rather than individual loans.
Businesses will still need to have a robust and meticulous business plan in place before applying for finance and ensure that their applications are watertight, much as they would need to when applying for a traditional bank loan.
Q. Will those applying for the loans have to offer personal guarantees?
Yes. Businesses that apply for the scheme will still need to meet the bank’s usual lending conditions, including any need for security, such as a personal guarantee.
Q. Must the customer be banking with the bank to apply for a loan under the scheme?
No. Businesses can apply for the loan even if they do their day-to-day banking with a different finance provider.
Q. Is there a minimum turnover for businesses eligible?
No. All businesses, no matter what their turnover size, are eligible to apply for the scheme. Any UK business, including UK incorporated companies and branches of foreign incorporated parents with a “genuine business” in the UK, is entitled to apply and there is no centrally-set minimum loan size.
However, as with all loan applications, in order to apply for a loan the business must not be in financial difficulty and also must not have an annual turnover of more than £50m.
Q. Is there a minimum loan that can be applied for? Is there a maximum loan that can be applied for?
We have set a minimum loan amount of £25,000 under the scheme, which is in line with other banks. Our reasoning behind this decision was to ensure that the scheme was kept as simple as possible. Loans under this amount are subject to the Consumer Credit Act which makes the process much more complicated. The maximum loan amount has been set at £5 million.
As with any funding, businesses should not apply for an amount that they cannot comfortably afford to repay now, and should forecast the likely effects of any loans on their business in the future. It is vital that businesses apply for the right amount of funding they need as they would do if applying for a normal bank loan.
Q. What’s the procedure?
Businesses need to contact a participating bank to discuss if they may be eligible for the NLGS. If they are, the application procedure is similar to that for regular loans. The bank’s usual lending conditions will apply, including any need for security, such as a personal guarantee.
All lending will also be subject to a satisfactory credit assessment.
Q. How long will the approval process take?
This will vary for each application and will depend on the bank’s internal process. Larger, more complex applications will often take longer to process.
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