Enterprise Finance Guarantee Scheme Still Not Helping Business

Figures detailing lending by specific banks under the Government’s enterprise finance guarantee scheme (EFG) were published last month and show that various changes to the scheme since its inception have not boosted lending.

However, for the first time, the data shows a breakdown by individual lenders, allowing businesses to identify which banks are making most use of government assistance to increase access to finance.

Bank lending levels have been disappointing since 2009, particularly to small firms. The EFG scheme was put in place to work against the dropping lending numbers, allowing banks to extend lending to SMEs by providing a government guarantee. Banks are encouraged to lend to businesses which otherwise lack the security or track record for a standard commercial loan.

During 2012, the government, in partnership with the banks, made a number of changes to the scheme, including an increase in the turnover limit of eligible companies from £25m to £41m, and replacing the £1m per business lifetime scheme limit with a rolling £1m outstanding limit.

However, the level of lending through the EFG scheme for the financial year ending in April is forecast to be broadly equal to last year. The government has made £500m available for guarantees for 2012/13 but EFG lending is expected to be only £315m.

In comparison, the total value of EFG loans drawn over 2011/12 was £301.3m, while some £461.3m worth of loans were drawn in 2010/11, and a full £737.1m in 2009/10.

Last year, Business minister Michael Fallon wrote to the chief executives of the five main high street banks to encourage them to increase their use of the EFG scheme.

He said that, while banks have to lend responsibly, it is clear that a number of lenders need to “up their game”. Consequently, by being more transparent on lending figures, the Government hope to give SMEs the information to best secure the finance they need to grow their business.

As an accountant, Simon Rowe, specialises in corporate finance, business turnaround and insolvency.

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