By Claire West

Lending under the flagship small business lending scheme, the Enterprise Finance Guarantee (EFG), has continued to fall despite the Government throwing the scheme open to larger businesses according to independent finance provider,Syscap.

Latest government figures show the value of loans offered by the scheme in the first six months after the scheme was opened to larger businesses (January 1-June 30) fell to just £170m, down 10% on the £189m for the same six month period in 2011. This is also down on the amount lent during the six months immediately preceding the change.

The failure of the scheme to increase lending to small businesses prompted the Chancellor to change its remit of concentrating on getting banks to lend to smaller companies with a turnover of under £25m. Instead the scheme changed its focus to lend to bigger business with a turnover of up to £44m (from January 1).

Syscap points out that there are now no major Government initiatives specifically aimed at increasing lending to smaller businesses - those with a turnover of under £25m. It is generally accepted that it is this class of smaller businesses that banks are particularly reluctant to lend to.

Comments Philip White, CEO, of Syscap: “Getting more debt funding to small businesses is not going to be easy but it is a shame that the Government has all but given up on that vital objective.”

“It seems like all the focus has been placed on the Funding for Lending scheme but of course that does not require banks to increase lending to small businesses. Nor does the Funding for Lending scheme incentivise banks to lend to smaller businesses or even bother setting targets for lending to small businesses.”

“We think increasing funding to SMEs is too important a problem for the Government to turn its back on. They need to start looking at a broader range of options — for example incentivise funding for small businesses through leasing. Leasing is the one of the few areas of the small business finance market that is growing.”

Philip White suggests that the Government could build on this success by offering providers of lease finance to SMEs the same kinds of low cost funding as is being provided to banks under the Funding for Lending scheme. Alternatively the Government could offer lease finance providers the same limited guarantees that it offers to bank lending under the EFG.

Funding for businesses from asset finance has increased by 12% over the last year to £20.5 billion (source: FLA, excludes high value eg aircraft and shipping) — meanwhile bank lending to businesses is still falling at 3% per year.