Government defends SME loans guarantee

The Department for Business Enterprise and Regulatory Reform has defended the performance of its £1.3bn loan guarantee scheme for small businesses, saying that two in three loan applications are successful.

Accountants and small businesses have claimed that the application procedure for the Enterprise Finance Guarantee scheme is convoluted, and that banks are reluctant to lend money through the scheme.

However, a BERR spokeswoman last week said that the EFG scheme was making good progress, and had so far lent about £230m.

The EFG, the government’s flagship support service for small business, is trying to improve the supply of credit to small companies to help them survive the recession. The 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%.

Last week, 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 and days later went into creditor’s voluntary liquidation.

‘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’.