Success for small firms loan scheme? 1 February 2010
Steven Jackson (about the author)

For small firms keen to bag a business loan from their bank, Worcestershire-based Jutexpo is an example of how a government-backed scheme is helping to boost lending levels across the UK.

The company, which makes environmentally friendly woven plant-fibre shopping bags, is one of 7,630 small and medium-sized companies that have benefited from the government's Enterprise Finance Guarantee (EFG) scheme in its first year of operation.

Launched in January 2009 as a response to the reluctance of banks to lend in the aftermath of the global credit crisis, EFG was the government's way of boosting lending to small and medium firms through the recession.

Open to businesses with a turnover of up to £25m, EFG is designed to enable firms to secure loans of between £1,000 and £1m, repayable over 10 years.

The way it works is that the government guarantees 75% of the loan, with the banks covering the remaining 25%.

Jutexpo, whose customers include Asda, Sainsbury's, Waitrose and Tesco, applied for a £700,000 EFG loan last year through its bank Lloyds TSB, and received the funding in less than a month.

"I wouldn't say it was easy, but on the other side it wasn't hard," says managing director Barrie Turner, who employs 25 people in the UK and 2,000 in India. "The money has enabled us to underpin our continuing growth."

Scheme should be acknowledged as a success

So far, loans totalling almost £780m have been offered through EFG, with all of the main banks participating.

And while official figures show that the UK has now left recession, the scheme is not scheduled to finish until 31 March 2011, with a total £1.8bn of funds available. The Federation of Small Businesses - not always complimentary of the government - says the EFG scheme "should be acknowledged as a success".

Another small firm that has secured funds through the initiative is Cornerstone Vision, a Plymouth-based publishing and marketing business. It gained a loan of £20,000 last August, via Barclays.

"The loan has enabled us to put ourselves in the financial position to push forward," says partner Karen Pilkington. "We cleared our existing debts, and have invested in a vital new customer database. "It was a good opportunity, and very helpful for our cash flow management."

Helps firms with not enough security

However, EFG is far from a free-for-all. Instead, firms still have to make their case for a loan on merit to their bank, explaining why they need the funds, and showing how they will be able to pay the money back.

"Time and time again over the past year, EFG has proven itself to be a superb way to support worthy businesses," says Steve Cooper, managing director of Barclays Local Business.

"EFG covers a key gap in the market - companies that are viable, perhaps even strong, but could not get a loan because they do not have sufficient security."

Figures from the main banks show that NatWest/Royal Bank of Scotland has so far lent about £250m through EFG, with Lloyds TSB £226m, Barclays £150m, and HSBC £86m.

Trade, Investment and Small Business Minister Lord Davis says EFG showed "the government was providing, real, targeted help to businesses when they need it, helping to ease cash flow, secure jobs and give businesses the capital they need to invest and grow".

Government must do more

While acknowledging the success of EFG, the Federation of Small Businesses says the government should now continue to do more to boost other forms of finance for small firms.

It says more loans and grants should be made available via the various regional development agencies, local counties, and even post offices.

"This would increase the choice of finance on offer to business owners, thereby enhancing their prospect of survival and helping them play their part in stimulating the economy," it says.

Meanwhile, the Conservative's shadow business minister John Penrose said EFG had been "too little, too late". "As a result, it didn't provided the vital credit to firms when they needed it most," he says.

"If Labour had taken our advice and adopted a bigger, bolder and simpler national loan guarantee scheme, we might have come out of recession earlier and more strongly."