Banks stalling on SME loans scheme

Small businesses are struggling to get funding through the government’s Enterprise Finance Guarantee scheme, due to banks’ reluctance to lend money and a protracted application process, accountants have claimed.

The EFG scheme, which was announced in January, was intended to free up £1.3bn worth of lending to SMEs with turnovers up to £25m looking for finance of up to £1m. Under the EFG, the government guarantees 75% of the loan, with banks risking the remaining 25%.

So far the scheme has lent nearly £190m. But accountants questioned by the UK200 Group, which represents about 110 UK accounting and law firms, said their clients’ experience of the flagship small business support initiative was patchy. ‘We have seen one [EFG application] go through, although a fair few are in the pipeline,’ said one respondent.

‘In summary, the banks don’t seem to know enough about them yet and they can work out relatively expensive.’

Another respondent said one of his clients – a family business with a good reputation – was refused a loan under the EFG scheme. ‘The bank stalled and stalled, asking for more and more information on the basis that this might help them to get the application through their committee, as it was ‘in the balance’.

‘More and more information was provided. Within a matter of days of informing the directors that their application was unsuccessful, the bank froze all the company’s funds and the company found itself in creditor’s voluntary liquidation almost immediately, having had little time to find an alternative funding source.’

He added: ‘[The family] are financially ruined because the bank would not accept a 25% risk on the loan, and a 35-year-old company with a good industry reputation has disappeared overnight.’

The British Bankers’ Association was unavailable for comment.