Fewer government-backed loans granted for SMEs » SMEInsider

Fewer government-backed loans granted for SMEs

Following last week’s Budget, Boost Capital questions the Government’s commitment to the Enterprise Finance Guarantee (EFG) scheme as latest figures show that it is not reaching or supporting many businesses, with the number of SMEs receiving finance through the scheme dwindling year on year since 2009, falling to a low in 2015.

The EFG, which sees the Government act a guarantor to SME loans, will be extended until at least 2018 following last week’s Budget announcement. However, figures from the British Business Bank show that just 446 companies were granted a loan to a total value of £55.7m in the last quarter of 2015. This compares to 2,030 loans drawn between April and June 2009 – at its peak – at a value of £201.6m, but the statistics show that lending has taken a sharp fall ever since.

The EFG scheme sees the Government (through the British Business Bank) act as a partial guarantor on up to 75 per cent of bank loans between £1,000 and £1.2 million made to SMEs who cannot offer any assets as security.

Alex Littner, managing director at Boost Capital, commented: “The Budget was positioned with SMEs at its heart yet the Enterprise Finance Guarantee scheme that was designed to serve capital-starved small businesses cannot be heralded a success when lending continues to fall.

“A mere 1,835 enterprises received EFG-backed loans during the whole of last year; when we consider that 99% of Britain’s 5.4 million business are SMEs, the figures continue to prove that the liquidity lost during the 2008 economic downturn is not back to where it was.

“While the EFG continued to receive further Government commitment last week despite no evidence it is really delivering what it set out to do, disappointingly absent was the Government’s progression on the bank referral scheme, first announced in 2014 which will ensure banks will share with alternative lenders the details of small business customers they reject for lending. It needs to act more swiftly – a launch date and any further details on how it will actually work is yet to be explained.

“Ironically, there are more sources of financial help for SMEs now than ever before, but the Government needs to push schemes like EFG and bank referral scheme to help small businesses locate this much needed capital. Alternative lending has emerged out of the business funding desert of recent years, driven by the urgent need of SMEs for capital.”