By Claire West

The average size of loans offered to those small businesses that have successfully secured a loan under the Government backed Enterprise Finance Guarantee (EFG) scheme has fallen says Aldermore the new British bank.

Over the last 12 months the average size of each loan offered under the scheme has dropped by 7% from £107,252 in Q2 2009 to £99,859 in Q2 2010.

Last month statistics released by Aldermore showed that a reduction in loan approvals under the EFG scheme meant that the amount of funding offered under the scheme had fallen from £186 million in Q1 2010 to just £149 million in Q2 2010.

Phillip Monks, Aldermore CEO says: “Not only has the total amount being offered under this scheme fallen but the amount of money being granted to each of the companies that got through the obstacle course has fallen too.”

“Something is not working.”

“We think the EFG scheme is a great idea, the Government thinks the EFG scheme is a great idea, the SMEs think the EFG scheme is a great idea. But clearly, if it is going to play more than a very marginal role in funding SMEs there needs to be some pretty quick changes made to it.”

Regional breakdown — shows how thinly spread the funding is

Aldermore says that a regional breakdown of the amount of funding offered under the EFG scheme shows how thinly the overall figure is spread (see graph below).

For example, in Northern Ireland SMEs were offered just £3.2m through the EFG scheme in the last quarter (Q2) and SMEs in Wales were offered just £6.3m. In the North East, including all of Tyneside, the figure was just £6.8m.

£18.9m was offered to SMEs in London and £17.7m to SMEs in the South East.

Comments Phillip Monks: “One way that the Government could get more lending done under the EFG scheme is to reduce the premium that it charges to small businesses for loans in those areas that need more help.”

Under the EFG scheme, businesses have to pay a 2% levy on the outstanding loan to the Department of Business, Skills and Innovation (BIS) as well as interest to the lender.

Says Phillip Monks: “When the base rate is 0.5% businesses might think an additional 2% premium to the Government is quite steep. Reduce that and perhaps you could stimulate more demand.”

“If that works they could extend the reduction in premiums to the rest of the UK.”

“If we get sensible, well-targeted lending going then the tax revenues will follow.”

“We do need SMEs to take up some of the slack in the economy especially with the public sector cutting costs. But if SMEs are really less ambitious for growth and less keen to borrow than a year ago, then that is a worry.”