Small companies applying for the Government’s Enterprise Finance Guarantee (EFG) scheme are being urged to ‘do their homework’ in the face of stiff assessment criteria.
The Government launched the EFG scheme in January to help recession-stricken small firms. Under the scheme, the loan still comes from the bank but the Government underwrites 75 per cent of it.
Background to the EFG scheme
The Enterprise Finance Guarantee scheme was set up as part of a package of measures to help small businesses facing temporary cash flow difficulties. Loans made under the scheme are 75 per cent guaranteed by the Government and are available to firms with a turnover of up to £25m. The loans which are made through high street banks can vary in size from £1000 to £1m over a period of up to 10 years.
The Business link website reports the following evaluation criteria:
Evaluation
Businesses will need to provide all the information normally required by a lender in connection with a loan application, which will generally involve completing their application form and providing supporting information, typically including your:
- Current business plan, including details of the purpose for which the loan is required and details of other investment in and financial commitments of the business
- Financial projections
- Historic trading figures
- Statutory and management accounts
- Information on any other publicly funded support received by your business within the past three years
Do your homework before applying
But North West law firm Mace & Jones said banks are applying rigorous assessments to EFG applications and remain cautious about lending. Despite the 75 per cent Government guarantee, each participating bank is subject to an overall limit on recovery under the scheme of nearer to 10 per cent of all of its EFG loans. Mace & Jones corporate partner Mike Yardley said businesses can easily fail to win approval.
“It is critical businesses do their homework and prepare the business for careful investigation by the bank,” he said. “This fund is aimed at businesses with cash flow problems. Whilst cash flow problems may be expected, other matters, such as problems with employees, property and commercial disputes and weak terms and conditions of supply, may cause the bank legitimate concerns. For this reason, a business should consider whether it needs to take legal advice, to discuss how to resolve any problems, if it is to benefit from the EFG.”
Barclays said last week that it was currently issuing around £2m of EFG loans per day through the scheme, which is available to businesses with an annual turnover of no more than £25m, seeking loans of between £1,000 and £1m.
According to the Department of Business, Enterprise and Regulatory Reform (BERR), 2059 small firms have now been offered loans collectively worth £186m under the scheme. In total, the scheme aims to see the Government provide £1 billion of guarantees to support to £1.3 billion of bank lending by March 2010.
The EFG scheme was recently extended to allow social enterprises to apply for finance under it.
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