Questions raised over enterprise loans scheme

THE Enterprise Finance Guarantee Scheme (EFGS), which was launched as a fail safe way to get banks to lend to struggling small firms, could leave lenders exposed to huge bad debts, it was claimed today.

According to North West business adviser Campbell Woolley, the EFGS may not be the low risk investment it was supposed to be,  and is preventing banks from offering the loans to customers.

The scheme had been widely believed to offer Government guarantees of 75 per cent on loans between £1,000 and £1m.  However, Andy Coveney, partner at Campbell Woolley, says that the actual amount a lender can claim back on defaulted loans could be less than 10%.

This issue was raised during meetings between seven lenders – Royal Bank of Scotland, Lloyds TSB,  Co-operative Bank, Yorkshire Bank, HSBC and Venture Finance –  a number of whom were concerned about the risks.

Mr Coveney said documents from BERR, which administers the scheme, revealed that a very low failure level has been set by the Government– believed to be 13%. This means that if a lender’s total EFG loan book was £1m and the total amount of defaults exceeded £130,000 in a year,  (13%) then they would only be able to claim 9.75% in compensation on the outstanding loans instead of 75%.

Mr Coveney said:  “What is clear is that there is a great deal of confusion surrounding the EFG scheme and we are still trying to get to the bottom of failure rates.

“But if claims are restricted to 9.75% on loan books that have exceeded the failure rate of 13%, then it is understandable why some lenders are reluctant to recommend EFGs to their customers. If the banks are exposed to this kind of risk then the EFG scheme could be a case of the Emperor’s New Clothes.”

Campbell Woolley is offering free seminars on the EFG scheme. Businesses who wish to attend the seminar on April 7 may register at: janec@campbellwoolley.com