The government is planning an extension of its £1.3bn loan guarantee scheme, following a decline in take-up from small businesses, it has been reported.
Independent finance provider Syscap said the Enterprise Finance Guarantee (EFG) scheme would soon be extended to cover invoice discounting facilities, which enable firms to manage their cashflow by receiving payment for sales invoices upfront.
According to the Telegraph, the EFG has guaranteed £535m of commercial bank loans since its launch in January and has received applications for loans worth over £800m. However, the number of approvals has fallen in recent months.
A spokesman for the Department for Business, Innovation and Skills (BIS) told the publication: “We have been looking at ways in which it could be tweaked to widen its availability. Extensions to the scheme are expected to be made shortly.”
Phil Orford, chief executive of the Forum of Private Business (FPB), welcomed news of the impending widening of the scheme, which is due to finish in March 2010.
He said: “The worst case scenario in all of this is that there are millions of pounds left unused at the end of the scheme. That would be extremely disappointing for those businesses that have been turned down and something we would not want to see.”
The FPB blamed the fall in approvals for the EFG on the fact that the banks were still requesting personal guarantees on loans to viable firms in many instances, despite the government shouldering up to 75% of the risk.
Orford added: “Banks are risk-averse on the question of small firms’ viability and their demands for personal guarantees are highly contentious among business owners. I think this is why EFG approvals have not been maintained at the encouraging early levels we saw back in April and May.”
Launched in January this year, the EFG replaced the Small Firms Loan Guarantee Scheme, with the intention of enabling an additional £1.3bn of lending to small businesses by March 2010. At present, the government guarantees up to 75% of bank loans, from £1,000 to £1m, to viable businesses with an annual turnover of up to £25m.
Syscap is now calling on the government to include lease financing under the remit of the EFG.
© Crimson Business Ltd. 2009