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Value of EFG loans fall despite Government's best efforts

6 December 2011

Small businesses have been complaining bitterly that obtaining finance is nearly impossible from the banks.  So we would expect a Government backed loan scheme to have a high take up. 

However, the value of loans secured through Enterprise Finance Guarantee (EFG) scheme designed specifically to  boost lending to small businesses has fallen by 63% during the three months to September compared to two years ago, official figures show.  The scheme means that the government will guarantee 75% of bank loans of between £1000 and £1m. 

Companies drew just £75.5m across 803 loans through the Enterprise Finance Guarantee (EFG) compared to £203m spread across 1,921 loans in the same period two years ago.

George Osborne has extended the scheme to businesses with sales of up to £44m when previously it was £25m. 

Several new lenders, including Metro Bank, will be accredited to join the scheme.

An EFG loan can be good value and reasonably quick to process. The investment criteria are perhaps less stringent than non-guaranteed facilities. Capital and or interest holidays can usually be agreed. For distressed companies this can be a lifeline while they return to profitability.

The Federation of Small Businesses (FSB) said its members are reporting that banks are giving companies mixed messages about the EFG and its availability.  In many instances it appears that the banks do not want even the risk of 25% of the loan and will always prefer security against assets such as as the borrowers home.

Andrew Cave, chief spokesman of the FSB, said: “Our members are going into banks and not getting a conclusive response to questions about the EFG. There seems to be some confusion about the criteria and which businesses can access it.”

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