Teresa Graham is deputy chair of the Government’s Better Regulation Task Force. She recently made recommendations for changes to the Small Firms Loan Guarantee Scheme (SFLGS), to make it easier for companies to access finance.
What will the changes involve?
There have been a number of reviews and the last one was in 1999. I started with an open mind – just because the scheme was useful in the past does not mean it was useful now. But start-ups and early growth businesses find it difficult to raise finance and there are few options available. I do believe the SFLGS should continue but I want to target it at precisely those businesses, speed up agreements and bring the SFLGS back into line with other commercial lending. For example, any small and medium enterprise should be allowed to have £250,000 regardless of what they had before.
There is a big default rate with the SFLGS. Why?
Default rates came as a surprise to banks – on average they are between 30 and 35 per cent compared to typical default rates of four per cent on normal SME lending by banks. But it is incredibly difficult for us to determine why. There are a lot of start-ups involved, which adds pressure to the default line. In the past, the scheme has also been a very bureaucratic process – now it will be easier to use.
Are banks going to change their attitude to the scheme?
It’s true that the SFLGS is not the most popular scheme within the banking community, but with the bureaucracy surrounding it, that’s hardly surprising. If there’s any scheme needing deregulation, the SFLGS is it. The rulebook is so complicated, I don’t understand it and eligibility is complex too – no wonder bank staff have been criticised for not liking it. Whatever I’ve been able to scrap, I’ve scrapped, and where things can be simplified, I’ve made them easier. The banks should have more control — the civil servants have been taken out of the picture.
When will the recommended changes come in?
It’s not up to me, but I hope as soon as possible. We are holding discussions with lenders and I want to encourage more to join the scheme. Obviously, as far as implementation goes, it will also take time. But there has been good, broad acceptance of the recommendations as a whole.