UK: Easy Credit for Small-Medium Enterprises

Government extends loan guarantee scheme

Falling application rates for the Government's flagship £1.3bn small business loan guarantee scheme have prompted the Business Department to widen its remit.

By Richard Tyler
Telegraph, 24 Sep 2009

Falling application rates for the Government's flagship £1.3bn small business loan guarantee scheme have prompted the Business Department to widen its remit.

Invoice discounting facilities, which enable companies to improve their working capital by selling their customer invoices, will become eligible under the Enterprise Finance Guarantee (EFG) scheme.

But other forms of financing used by small companies like leasing of plant and equipment will not be covered, according to independent finance provider Syscap.

A spokesman for the Business Department said: "We have been looking at ways in which it could be tweaked to widen its availability. Extensions to the scheme are expected to be made shortly."

The scheme has offered guarantees to £535m of commercial bank loans since its launch in January and has received applications for loans worth over £800m, but has fallen behind its monthly run rate recently.

Phil Orford, chief executive of the Forum of Private Business, said the trade body had lobbied for an extension to the scheme to include overdrafts as well as loans.

"EFG applications are in decline, which is why the Government needs to widen the scope of applications," he said. "Banks are risk-averse on the question of small firms' viability and their demands for personal guarantees are highly contentious among business owners. I think this is why EFG approvals have not been maintained at the encouraging early levels we saw back in April and May."

He added: "Our message would be – relax the criteria and widen the net to make sure this money is used up. The worst case scenario in all of this is that there are millions of pounds left unused at the end of the scheme. That would be extremely disappointing for those businesses that have been turned down and something we would not want to see."

The total amount of new UK business asset finance deals in the year to June at £23.6bn was 21pc down on the £30bn of the previous year, according to the Finance & Leasing Association.

Philip White, chief executive of Syscap, said: "Businesses fund the vast bulk of their capital investment through leases so it makes little sense to exclude leasing from the EFG scheme. If the Government includes leasing in the EFG the cost of leasing would fall and the availability of lease financing would increase."