PracticeConsultingBanks stalling on SME loans scheme

Banks stalling on SME loans scheme

Small businesses struggle to get funding through the government’s Enterprise Finance Guarantee scheme, due to banks’ reluctance to lend money and a protracted application process, accountants claim

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.

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