Submitted on Wednesday 28th January 2009
New funds for businesses
Key Facts
In the PBR the chancellor announced a £1bn small business finance scheme. Today, this goes live as the Enterprise Finance Guarantee
What is it?
The Government will provide a 75% guarantee on individual loans made by participating banks to small and medium sized businesses, who have viable business plans and would normally be able to access commercial lending but because of the economic conditions are considered too high risk by the lender.
Who is eligible?
Open to businesses with an annual turnover of up to £25m seeking loans of £1,000 through to £1million, repayable over a period of up to 10 years.
When is it available?
The guarantee is available through participating banks from today and will continue to operate until 31 March 2010.
What can business use this funding for?
Can be used to support new loans, refinance existing loans or to convert part or all of an existing overdraft into a loan to release capacity to meet working capital requirements.
How do I access this support?
For an initial appraisal on eligibility and bank contact details go to the Help with Finance web page hosted on www.businesslink.gov.uk/realhelp.
The guarantee will be available through the following banks:
RBS/Natwest, Barclays, Clydesdale/Yorkshire Bank, HBOS, HSBC, Lloyds TSB and Northern Bank. It will also become available from other lenders if they wish to apply.
Questions
What will happen to the small firms loan guarantee – is that being abolished?
The EFG scheme is much wider than SFLG. Businesses that may have been eligible for SFLG (that is, businesses that lack collateral and/or track record) – will be eligible under the new scheme. SFLG is therefore dormant and the government will bring forward proposals (for loan guarantee scheme from March 2010) later this year.
How is EFG different to SFLG?
In short it offers more help to more businesses – EFG provides loans up to £1million compared to an upper limit of £250,000 for SFLG and supports businesses with a turnover of up to £25million compared to £5.6million under SFLG. Additionally EFG loans can be used to convert an overdraft into a loan. EFG is available to businesses that in normal circumstances would be able to secure lending from banks. This scheme is based on targeting of viable business that cannot secure bank lending in the current times but would normally.
Wont government just be propping up unviable businesses?
No. To qualify for an EFG loan, businesses must demonstrate to the lender that they have a viable business in the longer term. The lender continues to carry risk of 25% of the loan and will therefore continue to apply their normal checks.
