Lending to small business via the government’s Enterprise Finance Guarantee (EFG) scheme has continued to fall in the last 12 months, according to recent figures.
Compared to an all time peak of 2,030 loans in the second quarter of 2009, just 1,835 small businesses in the UK were granted EFG loans throughout 2015.
Commentators have suggested that the EFG’s diminishing success could be because small firms have tended to look for more regular financing options, often from high street banks, that tend to offer more competitive terms. Improvements in economic conditions more widely have also been cited as a reason for a lack of EFG uptake.
Whittingham Riddell tax partner Duncan Montgomery said: “The government’s EFG scheme works on the edges a little more, and as the economy picks up there will be less need for such guarantees.
“EFG has served a good purpose, but small businesses already have banking relationships, and banks have very effective sales arms,” added Montgomery.
In his Budget speech on 16 March, George Osborne announced that the EFG scheme would be extended until at least 2018. Under the scheme, the government acts as partial guarantor on up to 75 per cent of bank loans between £1,000 and £1.2m to small firms that are otherwise unable to offer up assets to secure finance.
Jonathan Russell, a partner at law firm ReesRussell, said that the unattractive terms of government-backed loan schemes, combined with a general lack of appetite for borrowing, put the vast majority of small businesses off. “Professional advice has very much become that these loans were only suitable for individuals who had absolutely no assets, who would not even get over the initial hurdles with the banks.”