Managing Your Cash Flow

Lending to SMEs under EFG scheme plummets

2 min read

13 September 2011

Lending under the government’s flagship Enterprise Finance Guarantee (EFG) has nose-dived, according to a report out this week.

The value of loans offered under the Enterprise Finance Guarantee scheme fell to £433m in the 12 months to the end of June 2011, down from £742m during the previous 12-month period, says independent finance provider Syscap. That’s a drop of 42 per cent. 

Click on the chart below to enlarge.

In the most recent quarter (April to June 2011), just £93.1m worth of loans were offered to small businesses under the Enterprise Finance Guarantee scheme, down from a peak of £254.9m in same quarter of 2009.  

If that trend continues, the government is unlikely to reach the £600m allocated for additional lending under the scheme between April 1, 2011 and March 31, 2012.

The Enterprise Finance Guarantee scheme was announced in November 2008, and was designed to increase the availability of finance for SMEs. Under the scheme, the government guarantees 75 per cent of the value of lending in an individual loan to a business with a turnover of less than £25m. The Enterprise Finance Guarantee scheme itself is capped at 9.225 per cent of total funds lent out by each finance provider. 

The scheme allows invoice financing but excludes lease financing.  

“With economic performance in the last two quarters looking lacklustre and the on-going Eurozone crisis continuing to erode business confidence, an expansion of lending under the Enterprise Finance Guarantee scheme is urgently needed to help put the economy and job creation firmly back on the growth track,” comments Philip White, chief executive of Syscap. “But with the value of Enterprise Finance Guarantee loans offered during the first quarter of this financial year so low, it’s looking highly unlikely that the scheme will make much of an inroad into the £600m that has been put aside for it.

“One reason for this may be that the scheme still excludes leasing – which is a crucial source of financing for SMEs for many reasons – not least because it is used by businesses to acquire new IT and machinery. It is exactly the kind of capital investment that we need to start a sustainable recovery.”