A UK bank has claimed that The Enterprise Finance Guarantee (EFG), the Government scheme designed to assist lending to SMEs, has hit a new low with the amount of loans offered in the first quarter of 2011 falling to ‘just’ £92m. Of course, to most of us £92m sounds like quite a lot of money (that’s a lot of shoes…), but the figure represents a decrease of over £10m compared to the lending figures for the previous quarter – or, to put it another way, hundreds or even thousands of businesses missing out on funding.
The EFG should be a great source of money for small and medium businesses that have insufficient or no security with which to secure a normal commercial loan. Essentially, the Government provides a guarantee to the lender (a bank) for 75% of the loan value, making the lender more confident about providing money to businesses that they would otherwise consider to be too risky. Individual companies can apply for between £1k and £1m, with the Government stating that over £2b may be provided by the scheme over the next four years. That’s all good in theory, but only if the money is actually lent!
So should we be gathering torches and pitchforks at this latest news? Well, perhaps not quite yet. Firstly, the Government are putting more pressure on lenders to hand out their money, with banks being threatened with extra taxes if they don’t start hitting their lending targets. Secondly, it was announced in November that Community Development Finance Institutions (CDFIs) – basically a form of lending organisation that specialises in helping people that are unable to get finance from the banks – are going to be able to access the EFG, effectively removing the banks from the process all-together for some SMEs. Let’s hope that moves like these lead to an uptick in the lending amounts in the near future.