Thousands of small businesses will find it easier to obtain bank loans because of changes announced in today's Pre Budget Report. From 1 April 2003, a whole new raft of sectors - including retailers, caterers and motor mechanics - will be eligible for the Small Firms Loan Guarantee Scheme, whereby the Government provides a guarantee encouraging banks to lend to small firms. It's estimated that the move will mean a 25 per cent increase in loans granted under the scheme - another 1,000 a year. Last year the scheme provided over 4,000 loans, the average being just under £60,000 per loan.

The revised scheme, which will be one of a much reduced number of business support schemes, will make an important contribution to the DTI's objective of driving up productivity.

The changes to the scheme will mean:

• retail, catering, motor vehicle repairs and servicing, travel agents, libraries, museums and cultural activities, steel and coal businesses, hairdressers and estate agents will become eligible for the scheme;
• the maximum turnover limit for the service sector will increase from £1.5m to £3m per year;
• a single guarantee rate of 75 per cent will apply, rather than the current 85 per cent for established firms and 70 per cent for younger businesses;
• previous beneficiaries will be able to apply again - as loans granted prior to April 1993 will no longer count towards the maximum loan amount; and
• a 2 per cent premium will be paid by the borrower on all new loans.

Patricia Hewitt, Trade and Industry Secretary, said: "The Loan Guarantee Scheme is one of the Government's success stories with over 82,000 loans guaranteed to the tune of £3 billion in total. The changes will mean even more small businesses can benefit from the scheme, making a real difference to those that find it difficult to obtain bank finance. The move will especially help businesses within ethnic minority groups, who tend to operate many business in the new participating sectors."

The Government will also be looking to increase the number of participating lenders. Currently, 23 lenders are included in the scheme.

Stephen Alambritis, of the Federation of Small Businesses, said: "This is fantastic news for small businesses.Access to finance is a key issue for entrepreneurs and these changes will mean that the businesses who form the backbone of the economy, such as small shopkeepers, have a better chance of securing bank loans."

The change to the Loan Guarantee Scheme is one of the first outputs under the DTI review of business support and form part of a package of measures to encourage enterprise announced in the Pre Budget Report.

THE SMALL FIRMS LOAN GUARANTEE SCHEME

The Small Firms Loan Guarantee Scheme is administered by the Small Business Service (SBS) and was introduced to fill a recognised gap in the market for small firms access to finance. It assists viable small firms that are unable to raise conventional finance because of lack of security. The Scheme provides a guarantee, which encourages banks and other financial institutions to lend where they would normally be unable to do so.

The Loan Guarantee Scheme started in 1981 and to date has guaranteed over 82,000 loans valued at more than £3 billion. Over the last year, the scheme has provided 4,269 loans. Loans are for fixed terms, with a minimum of two years and a maximum of ten. The maximum loan size is £250,000 for established businesses that have been trading for two years or more and £100,000 for younger businesses.

There are currently 23 lenders participating in the Scheme including all the main banks and a number of other financial institutions. All applications are made direct to lenders who are responsible for all commercial decisions.

Click here for further information on the Small Firms Loan Guarantee Scheme.