SME funding under EFG scheme hits new low

THE VALUE of loans offered under the government's flagship small business lending scheme, the Enterprise Finance Guarantee (EFG) scheme fell by 11% in the first quarter of 2011, down from £103m in the last quarter of 2010 to £92m, a UK bank has claimed.

This is a new low for the scheme, which aims to provide access to debt finance for viable SMEs that have no security available to them, since it was launched in January 2009 as the then Labour government's recession-fighting stimulus package.

According to Aldermore, lending under the EFG peaked in early-2009 and has been steadily declining since then and is Lending now just 36% of its level just under two years ago and 49% of its level at the same time last year.

"Lending through the EFG is now half of what it was at the," said Phillip Monks, CEO of Aldermore. "We should be looking at how more funding can be delivered through EFG rather just allowing it to dwindle away."

Monks says that lending through the EFG scheme could be increased by reducing the size of the payment made by participating small companies to the government or by increasing the size of the slice of the loan that the government guarantees.

"The government should consider investing a little more money to get some life back into the EFG scheme as it is one of the few initiatives that does get funds to SMEs that are otherwise starved of bank lending," he said.

Difficulty in accessing the finance the EFG is supposed to offer has meant the scheme has been much maligned by SME FDs. In April, Steve Hughes, a policy adviser at the British Chambers of Commerce and an architect of the scheme, defended its implementation in Financial Director.