Finance Guarantee Scheme

Published:  23 June, 2009

MANCHESTER: Small businesses applying for the government's Enterprise Finance Guarantee (EFG) scheme must "do their homework" if they want to succeed.

Mike Yardley at law firm Mace & Jones said businesses could easily fail to win approval unless they prepare the business for careful investigation by the bank. "This fund is aimed at businesses with cash flow problems. Whilst cash flow problems may be expected, other matters, such as problems with employees, property and commercial disputes and weak terms and conditions of supply, may cause the bank legitimate concerns," he said.

Yardley advises businesses to take legal advice and resolve any problems before applying for such loans. Banks are applying rigorous assessments to EFG applications and remain cautious about lending. Despite the 75% government guarantee, each participating bank is subject to an overall limit on recovery under the scheme of nearer 10% of all of its EFG loans, he said.

The government launched the EFG scheme in January to help recession-stricken small firms. Under the scheme, the loan still comes from the bank but the government underwrites 75% of the loan.

Barclays said last week that it was currently issuing around £2m of EFG loans per day through the scheme, which is available to businesses with an annual turnover of no more than £25m, seeking loans of between £1000 and £1m.

According to the Department of Business, Enterprise and Regulatory Reform (BERR), 2059 small firms have now been offered loans collectively worth £186m under the scheme. In total, the scheme aims to see the government provide £1bn of guarantees to support to £1.3bn of bank lending by March 2010.

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