EFG scheme needs to change, says Aldermore

THE AVERAGE size of loans offered to small businesses through the government’s Enterprise Finance Guarantee Scheme has fallen, according to new research.

Manchester-based Aldermore Invoice Finance has published research which shows that the average size of loans offered to SMEs under the initiative dropped to £99,859 in the second quarter, from, £107,252 a year earlier.

Despite this, the research also shows that companies in the North West had done far better than counterparts in other regions to access this cash. North West companies received £17.9m of the £149m issued under the scheme during the second quarter, the research shows.

Darren Cottenden, regional managing director at Aldermore Invoice Finance, argues that the scheme is not working properly.

“We think the EFG scheme is a great idea, the Government thinks the EFG scheme is a great idea, the SMEs think the EFG scheme is a great idea. But clearly, if it is going to play more than a very marginal role in funding SMEs there needs to be some pretty quick changes made to it.”

He  argued that governments should reduce the premium that it charges to businesses for accessing the loans. Firms currently have to pay a 2% levy to the Department for Business, Innovation & Skills as well as the interest on the loan to the lender.

“When the base rate is 0.5% businesses might think an additional 2% premium to the Government is quite steep,” said Cottenden. “Reduce that and perhaps you could stimulate more demand.

“If we get sensible, well-targeted lending going then the tax revenues will follow.”