The Enterprise Finance Guarantee (EFG) scheme was launched in 2009 to boost economic growth by helping small firms, lacking adequate security or with a proven track record for standard commercial loans, to meet the banks’ standard lending requirements. Under the scheme, the government acts as a guarantor on 75 per cent of each individual bank loan of between £1,000 and £1m. Last year, the government committed funding for the EFG scheme until 2014 to 2015, guaranteeing up to £1.5bn in additional lending.

Recently published independent research by Durham Business School suggests that the EFG scheme has had a strong impact on the economy. 

The study found that, since May 2010, the EFG scheme has:

• Helped over 10,000 businesses access £1.04bn of loans. The scheme is successfully reaching businesses operating in the margins of traditional bank lending. Over 80 per cent of businesses would not have been able to secure a loan through conventional bank lending, mainly because they lacked sufficient collateral;

• Created an additional 6,500 jobs, and saved 12,365 jobs; and

• Had a net economic benefit of £1.1bn to the economy, and is real value for money for the tax payer as every £1 invested by the exchequer delivers a benefit of £33.50 to the economy.

Business minister Michael Fallon said, “This latest research shows that the EFG is helping precisely those businesses who can’t get finance elsewhere. It is getting money to where it is needed, saving jobs, and delivering a huge benefit for the wider community.”

However, the news of the positive impact of the EFG scheme comes amid the backdrop of falling year-on-year EFG scheme lending. Recent figures published by the government show that lending under the EFG scheme has fallen by 67 per cent since its peak in the third quarter of 2009 – a surprising decline given that the government and banks have been working hard together to refine the EFG scheme. They have tried to make it more attractive to lenders and to broaden the range of companies that qualify for it.

Fallon wrote to the chief executives of the five main high-street banks last year to encourage them to increase their use of the EFG scheme. In December, the government started publishing EFG scheme lending data, broken down by individual banks to ensure increased transparency.

Despite these efforts to improve take-up, forecasts for 2012 and 2013 show that lending through the EFG scheme will only be at around £315m, which is broadly equal to last year.

“I have already begun publishing EFG lending by each individual bank, because businesses should know which bank they are better off approaching,” Fallon concludes. “I will continue holding the banks to account until lending levels improve.”

Nick Lewsley is an associate with the Corporate and Commercial department at Thomson Snell & Passmore solicitors.

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