Businesses confused over Enterprise Finance Guarantee scheme

MIXED messages and poor marketing are confusing small businesses in the West Midlands about the role of the Enterprise Finance Guarantee (EFG) Scheme, a Birmingham accountant has claimed.

Henry Briggs, senior partner of the Birmingham office of Haines Watts, said although the new scheme, which replaced the previous Small Firm’s Loan Guarantee Scheme, had loaned more than £850m, this was still just a “drop in the ocean”.

“Last November, the government announced the guarantee would be extended, committing a further £200m to the EFG facility over four years,” he said.

“But at the same time, it cut the guarantee it provides to the high street banks which mean that bank exposure to potential liabilities under the scheme would impact negatively on the ability of smaller banks to use it.

“Despite the scheme being available nationally, each participating bank has different rules and that, coupled with recent and seemingly conflicting announcements by government, is serving only to confuse businesses.”

Some 40 lenders, including the main high street banks, offer loans through the EFG Scheme but Mr Briggs said many businesses were loath to apply to banks for loans in the first place – partly because of conflicting stories about finance availability and the need for security.

“It is not helped by banks having their own rules regarding the scheme,” he said.

“The government provides a guarantee for 75% of the value of the loan but many banks are then requiring the company directors to provide a personal guarantee for the remaining 25% – whilst others ask for a personal guarantee for 100% of the loan, despite it being underwritten by government.”

Mr Briggs said figures from the Department for Business, Innovation and Skills showed that in the period January 2009 to March 2010, 8,346 loans were made under the scheme, to a value of £850.7m.

Although figures for 2010-2011 are not yet available, the accountant said he believed they would be at the same level.

Mr Briggs is now calling on the government for greater transparency and a level playing field so that businesses can assess which lender is best for them, according to their circumstance.

“Businesses need to know where they stand. There are further changes coming to the scheme in April 2011 as the Government is working with the banks on a commercial scheme based on the EFG for businesses seeking working capital for exports,” he said.

“Whilst this is much needed and in line with their stated strategy for growth, it still leaves uncertainties for businesses about how and where they might access funds under the scheme.”

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