Government scheme secures £500 million in business loans

Over 5,000 firms have secured loans worth more £580 million under the government’s Enterprise Finance Guarantee scheme.

According to the Department of Business, loans totalling around £720 million have been offered to firms.

The EFG scheme, launched in January 2009, is intended to help businesses that are struggling to raise finance, and is available for viable firms with an annual turnover of up to £25 million that are looking for loans of up to £1 million.

Under the scheme the government provides a guarantee of 75 per cent of the loan, which can be used, among other things, to back new borrowing, to refinance existing loans, to convert overdrafts into loans in order to release working capital, or to guarantee new or increased overdraft borrowing in order to meet short-term cashflow difficulties.

A report into the effectiveness of the EFG, carried out by the Policy Research Group of Durham University, found that 94 per cent of respondents said their business prospects had improved following the loan, and 84 per cent reported that the EFG had helped their prospects of survival.

Almost all said they felt that they wouldn’t have been able to achieve the same business outcomes at the same speed or scale, if at all, without the EFG.

The loans have been used to improve cashflow, introduce new products or processes, develop business growth, and to create jobs.

Lord Davies, the Trade, Investment and Small Business Minister, said: “These impressive results show the government is providing real help to businesses when they need it, helping to secure jobs and give businesses the capital they need to invest and grow.”

As of December, more than £1.04 billion of eligible applications from over 9,200 firms have been granted, or are being processed and assessed, the government said.

In his pre-Budget Report, the Chancellor, Alistair Darling announced that the EFG would continue for another year. This should make available an extra £500 million of bank lending between 1 April 2010 and 31 March 2011.

However, the Durham University study also found that some lenders were charging administration fees as high as 1.8 per cent and interest up to 6.75 per cent on the loans.

The average £55,000 loan attracted a £1,000 fee, with charges rising according to the size of the loan, reaching £2,430 on a loan of £113,000.

The study noted that the admin fees charged by the lenders, which are not set by the Department of Business, “were the issue of greatest concern for most businesses”.

Lenders have been told to assess EFG loan applications using their normal commercial criteria.

But Stephen Alambritis of the Federation of Small Businesses said: “This scheme should be the cheapest in town. The government should look at these charges and bring them in line with the charges imposed by the partially state-owned banks.”

The Department of Business responded by saying: “We look to lenders to apply commercial rigours to lending decisions, and set appropriate rates and fees to reflect the risk of the individual borrower and loan size. Almost all EFG offers are drawn down which indicates businesses feel they are able to meet the conditions of the loan and the scheduled repayments.”

The scheme is available through the following lenders: Airdrie Savings Bank,Alliance and Leicester Commercial Bank, Allied Irish Bank, Bank of Baroda, Bank of Cyprus UK, Bank of Ireland (NI only), Bank of Scotland, Barclays, Big Issue Invest, Bolton Business Ventures, Braveheart Investment Group, Business Enterprise Fund, Business Finance Solutions, Capitalise Business Support, Close Brothers, Clydesdale Bank, The Co-operative Bank, Cumbria Asset Reinvestment Trust, Donbac, DSL Business Finance, First Trust Bank (NI only), GLE oneLondon, HSBC, IGF Invoice Finance, Lloyds Group, NatWest, NEL Fund Managers, Northern Bank (NI only), The Royal Bank of Scotland, State Securities, South West Investment Group, Triodos Bank, UK Steel Enterprise, Ulster Bank (NI only), Venture Finance, Whiteaway Laidlaw Bank and Yorkshire Bank.