Government small business lending scheme wins support

The government’s main scheme for encouraging the banks to lend to SMEs during the recession has gained the backing of business groups.

The Enterprise Finance Guarantee (EFG) scheme, which was introduced in January, had previously been criticised for its failure to ease the availability of credit.

But business groups giving evidence to the Commons’ Business and Enterprise Committee were quick to praise the scheme now that it has had time to develop.

Andrew Cave, head of policy at the Federation of Small Businesses, said: “When it was launched there were problems. Those are hurdles that have been overcome.”

Mr Cave argued that the EFG represented an advance on the small firms loan guarantee scheme.

Russell Griggs, who is chairman of the CBI’s SME council, said he believed that the scheme would achieve its aim of supporting £1.3 billion worth of business loans by March of next year.

Phil Orford, chief executive of the Forum of Private Business, said: “I think there has been a huge learning curve that everybody has been through.”

Adding that money was now reaching smaller firms, Mr Orford described the EFG as a model for future loan guarantee programmes.

The Enterprise Finance Guarantee was set up to help smaller, credit-worthy companies which might otherwise fail to secure the funding needed for working capital or investment finance.

The government is providing £1 billion of guarantees to support bank lending to firms with an annual turnover of up to £25 million and which are looking for loans of up to £1 million for a period of up to 10 years.

The scheme offers a state guarantee of up to 75 per cent of the loans.

The guarantee can also be used to convert existing overdrafts into loans so businesses can free up their overdraft facilities to use as working capital.