By Marcus Leach
Lending under the Government’s flagship small business lending scheme, the Enterprise Finance Guarantee (EFG), has plummeted, falling by 42% over the last year says the independent finance advisor Syscap.
The value of loans offered under the EFG scheme fell to £433 million in the 12 months to the end of June 2011, down from £742 million during the previous twelve month period.
Syscap points out that in the most recent quarter, between April and June 2011, just £93.1 million worth of loans were offered to small businesses under the EFG scheme, down from a peak of £254.9 in same quarter of 2009.
If that trend continues, the Government is unlikely to reach the £600 million allocated for additional lending under the scheme between 1 April 2011 and 31 March 2012.
Excluding leasing, a key source of small to medium sized enterprises (SMEs) financing from the scheme, may be putting an artificial curb on demand for EFG loans. As a result, businesses may be postponing crucial capital investment.
Despite submissions from the finance industry, the Enterprise Finance Guarantee (EFG) scheme excludes the funding of businesses through lease financing. Leasing is a crucial source of funding for SMEs as it helps spread the cost of assets and maintain a healthy cash flow and is also tax deductable. Another form of asset finance, invoice financing, is allowed under the EFG.
“With economic performance in the last two quarters looking lacklustre and the on-going Eurozone crisis continuing to erode business confidence, an expansion of lending under the EFG scheme is urgently needed to help put the economy and job creation firmly back on the growth track,” Philip White, Chief Executive of Syscap, said.
“But with the value of EFG loans offered during the first quarter of this financial year so low, it’s looking highly unlikely that the scheme will make much of an inroad into the £600 million that has been put aside for it.
“One reason for this may be that the scheme still excludes leasing — which is a crucial source of financing for SMEs for many reasons - not least because it is used by businesses to acquire new IT and machinery. It is exactly the kind of capital investment that we need to start a sustainable recovery.
“Since the banking crisis, good progress has been made in attracting funders back to the leasing market, but allowing lease finance into the EFG scheme would give a major boost to the availability and affordability of leasing just when it is most needed.
“Making lease finance more readily available would mean businesses can make the investments they need now rather than postponing them indefinitely. This would bring an immediate boost to the economy and also have a longer-term impact on the competitiveness of UK businesses.”
The Enterprise Finance Guarantee scheme was announced in November 2008, and was designed to increase the availability of finance for SMEs. Under the EFG scheme the Government guarantees 75% of the value of lending in an individual loan to a business with a turnover of less than £25m. The EFG scheme itself is capped at 9.225% of total funds lent out by each finance provider.
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