Small firms get financial help from new scheme

Design consultancies wanting to expand, but unable to raise the funds can now turn to a new initiative called Mutual Guarantee Societies.

The National Association of Mutual Guarantee Societies has spent the last 18 months setting up eight pilot schemes around the country, designed to help small companies raise money. It has just secured the financial backing it needs to run the scheme, from the Co-operative and Unity Trust banks, and is now live.

The scheme arranges for small businesses to “pool” savings into a common fund which can be used as security against loans. This effectively increases the amount firms can borrow by between 20 per cent and 50 per cent and provides the management support that many designers say the industry lacks.

Chartered Society of Designers president Adrianne LeMan welcomes the initiative: “Because of the uncertainty around their income, it is not a good idea for design groups to rely too heavily on overdrafts. An alternative such as the Mutual Guarantee Societies scheme is to be welcomed.”

As part of the agreement, the Co-op will also give pool members a lending rate 2 per cent lower than normal, effectively reducing bank charges by around 70 per cent.

Small firms minister Barbara Roche says: “Getting finance is one of the biggest problems for small firms and I want to encourage fresh, imaginative solutions. Mutual guarantee societies is an important step in helping firms to overcome the disadvantages they have in sourcing finance compared to larger companies.”

The announcement comes as research published by Business Links shows up to half the bank loans requested by small and medium-sized enterprises are rejected. The research, conducted among 300 SMEs in Kent, also shows that 60 per cent of firms had not written a business plan.

“It is not just a question of giving banks the information they need – they also need to be given confidence in the management skills of the company they would be lending to,” says Peter Kitching, finance development manager for Business Links Kent.

The Mutual Guarantee scheme is running in Lancashire, County Durham, Manchester, the Black Country, East London, Leeds, Kent and the Midlands. Each has between 25 and 40 members. The National Association of Mutual Guarantee Societies says it hopes to add seven new societies a year in the foreseeable future.

Companies can join a local society by buying one share and saving into the mutual account.