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BKL in the press
Enterprise Finance Guarantee Scheme
This reply was first published by Business Credit Management on 05/07/2010
The UK200Group, an association of independent accountancy and lawyer firms from around the UK, has responded to reports that lending to small businesses under the government’s Enterprise Finance Guarantee Scheme (EFG) has fell by 23 per cent in the six months leading up to the General Election.
Daniel Shear, corporate finance partner, BKL (London):
“I predicted in January of last year that the scheme may not be successful and unfortunately I may have been right. The scheme replaced the old Small Firm Loan Guarantee Scheme which was not universally popular among the banks.
“If a lack of security is the only issue preventing a bank making a loan then the EFG scheme will allow the bank to make what is effectively a cashflow loan. However, banks still need to make their own commercial decision on the loan and be comfortable in making a loan that is 25 per cent unsecured.
“Too many businesses are rejected for an EFG loan because they do not have a robust business plan supported by historical financial information and reasonable forecasts indicating how the loan will be serviceable. Those that are able to ‘sell their story’ are often ineligible for an EFG loan under the lending criteria.
“After the write-off the banks have made in recent years they are being more strict on new loans, and given that 25 per cent of an EFG loan effectively remains unsecured it is perhaps not surprising that banks’ credit teams are not willing to sanction so many EFG applications.
“Finally, with low interest rates the government premium makes the overall interest rate charged on EFG loans relatively high at the moment and some eligible businesses may decide that alternative sources of financing would be cheaper for them.”
