Fewer government-backed loans granted for SMEs

The Enterprise Finance Guarantee (EFG) scheme is not reaching or supporting many businesses, with the number of SMEs receiving finance through the scheme dwindling year on year since 2009, research finds.

The EFG, which sees the government act as a guarantor to SME loans, will be extended until at least 2018 following last week’s Budget announcement.

However, figures from the British Business Bank show that just 446 companies were granted a loan to a total value of £55.7 million in the last quarter of 2015.

This compares to 2,030 loans drawn between April and June 2009 at a value of £201.6 million, but the statistics show that lending has taken a sharp fall ever since.

The EFG scheme sees the government (through the British Business Bank) act as a partial guarantor on up to 75 per cent of bank loans between £1,000 and £1.2 million made to SMEs that cannot offer any assets as security.

Alex Littner, managing director at online finance provider Boost Capital says that while the Budget was positioned with SMEs at its heart, the Enterprise Finance Guarantee scheme that was designed to serve capital-starved small businesses cannot be heralded a success when lending continues to fall.

‘A mere 1,835 enterprises received EFG-backed loans during the whole of last year; when we consider that 99 per cent of Britain’s 5.4 million business are SMEs, the figures continue to prove that the liquidity lost during the 2008 economic downturn is not back to where it was,’ he adds. 

Littner says that the EFG continued to receive further government commitment last week despite ‘no evidence it is really delivering what it set out to do’.

‘Disappointingly absent was the government’s progression on the bank referral scheme, first announced in 2014, which will ensure banks will share with alternative lenders the details of small business customers they reject for lending,’ he says.

‘It needs to act more swiftly; a launch date and any further details on how it will actually work is yet to be explained.’

There are more sources of financial help for SMEs now than ever before, but the government needs to push schemes like EFG and bank referral scheme to help small businesses locate this much needed capital, according to Littner.

Further reading on small business finance

Ben Lobel

Delphine Hintz

Ben Lobel was the editor of SmallBusiness.co.uk from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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