Funding guarantee scheme flounders

by Michelle Perry

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26 Feb 2009

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Access to bank loans under the government-sponsored Enterprises Finance Guarantee scheme remains problematic for SMEs more than a month after ministers announced the credit line, say business groups.

Accountancy Age recently revealed that small and medium-sized companies were struggling to access a special credit package designed to release credit to the SME market, which makes up around 98% of all businesses in the UK.

The EFG scheme was intended to free up £1.3bn worth of lending to SMEs with turnovers up to £25m looking for finance of up to £1m.

‘My enquiries of around 100 UK firms indicate generally a lack of information and preparedness by all the banks to make use of the EFGS funding,’ says Kevin Dickens, chairman of the UK 200 group, a trade body representing 120 accountancy firms across the UK with a total of 150,000 SME clients.

On one particular application for a client where £1m was requested under the scheme, Dickens said the banks were ‘reluctant to use the scheme and are asking for personal guarantees to supplement the scheme’ ­ a request that appears to undermine the purpose of the government-backed credit packages.

Under the EFG the government guarantees 75% of the loan, with banks covering the remaining 25%.

Alexander Ehmann, head of parliamentary and regulatory affairs at the Institute of Directors, also noted there had been little change in the tough credit conditions for SMEs. ‘The schemes have taken a while to get down to the banks,’ said Ehmann, adding that the perception of the availability of credit had not improved either.

Banks however say they continue to lend under the new schemes and their own SME-targeted schemes, but only some of the banks involved have any figures available.

Barclays says it has ‘sanctioned £12m worth of loans’, while the Royal Bank of Scotland/NatWest said since the EFG was launched, ‘the value of EFG loans we have drawn down or currently have in the pipeline totals £20m.’

Both HSBC and the Yorkshire bank, two of the banks participating in the EFG scheme, said they had
no data available on how much they had lent.

A spokesman for Yorkshire bank said: ‘We have had a strong level of interest and have approved some loans.’

A Department for Business spokesman said: ‘Following the launch of the Enterprise Finance Guarantee just four weeks ago, banks have received hundreds of enquiries and the scheme has already started to disburse funds.

‘We will report more fully on its progress shortly. We are actively marketing this scheme and are keen to hear branches unaware of it.’

In January, Accountancy Age reported that some businesses had been told that funding using the scheme would not be available until the end of February but advisers and businessmen seeking loans complained of a lack of direction from government before it launched the new programme.

Banks using the scheme include Barclays, Clydesdale/Yorkshire, HBOS, HSBC, Lloyds, Northern and RBS/Natwest.

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