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{{Short description|UK government-guaranteed lending scheme}}
{{Use dmy dates|date=May 2014}}
{{Use British English|date=May 2014}}
The '''Enterprise Finance Guarantee''' (EFG) is a [[UK government]]-guaranteed lending scheme intended to help smaller viable businesses who may be struggling to secure finance, by facilitating bank loans of between £1,000 and £1 million.
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== Details ==
In his [[Pre-budget report|Pre-Budget Report]], presented on 24 November 2008, the [[Chancellor of the Exchequer|Chancellor]] announced a Small Business Finance Scheme. This went live as the Enterprise Finance Guarantee on
The government offer to bear 75% of the risk of [[Default (finance)|default]] on each eligible individual loan, subject to a cap on the total claims that may be made by each participating bank.
EFG has replaced the Small Firms Loans Guarantee (SFLG) Scheme. It has wider criteria, in that it offers guarantees of loans of up to £1 million, rather than £250,000, and is available to businesses with a turnover of up to £
The scheme is open to businesses with an annual [[Revenue#
The scheme is only open to viable businesses with no security or insufficient security.
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The cost of the guarantees to the borrower is 2% per annum of the outstanding balance, collected quarterly, payable to BIS. BIS are offering a discount of 25% (making the cost of guarantees 1.5% per annum) for all premiums successfully collected in 2009.
Under the EFG scheme the UK government, through its [[Department for Business, Innovation and Skills]]<ref>{{cite web |url=http://www.berr.gov.uk/whatwedo/enterprise/enterprisesmes/info-business-owners/access-to-finance/sflg/page37607.html |title=Enterprise Finance Guarantee - BERR |accessdate=2009-01-07 |url-status=dead |archiveurl=https://web.archive.org/web/20090116094501/http://www.berr.gov.uk/whatwedo/enterprise/enterprisesmes/info-business-owners/access-to-finance/sflg/page37607.html |archivedate=16 January 2009 |df=dmy }},
However, lenders participating in the scheme cannot exceed claiming back more than 13% of the total amount lent under EFG. Therefore, only 9.75% of the total loan portfolio is recoverable (75% of value of loans recoverable until ceiling of 13% is reached = 9.75% total amount recoverable by scheme participants making loans).
The maximum cost to the taxpayer is the 9.75% less the total fees collected from all borrowers.
The Enterprise Finance Guarantee applies to loans, and can also be used to convert existing overdrafts into loans to enable businesses to free up their current overdraft facilities to meet working capital demands.
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* Applications will be considered where a business has a viable proposal but may incur difficulty in obtaining conventional finance because of lack of security.
* The EFG is not restricted to established businesses. If a new start-up, with no/little available security, meets usual credit policy criteria and has presented a sound business plan, the Bank may still choose to support an EFG application.
The EFG was initially managed on behalf of the Government by [[Capital for Enterprise]] Limited (CfEL),<ref>{{Cite web |url=http://www.capitalforenterprise.gov.uk/ |title=Capital for Enterprise |access-date=9 August 2019 |archive-url=https://web.archive.org/web/20130522081522/http://www.capitalforenterprise.gov.uk/ |archive-date=22 May 2013 |url-status=dead }}</ref> an arm's length body which was the UK Government's centre of knowledge and expertise in SME finance interventions. On 1 October 2013, CfEL became part of the [[British Business Bank]] which is now responsible for the EFG.
The EFG scheme has been temporarily replaced by the Coronavirus Business Interruption Loan (CBIL) scheme in response to the global COVID-19 pandemic,<ref>{{Cite web|url=https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils-2/|title = Coronavirus Business Interruption Loan Scheme (CBILS)}}</ref> although there are no indications of when, or indeed if, the EFG scheme will be reinstated. Some experts have called for the scheme to be reinstated alongside the CBIL scheme.<ref>{{Cite web|url=https://www.hiltonsmythe.com/latest-news/more-support-for-small-businesses/|title=More support for small businesses - Hilton Smythe|date=6 August 2020 }}</ref>
The CBIL scheme effectively replaced the EFG scheme to enable rapid delivery through main and secondary lenders utilising an already established platform of delivery that was used to distribute the EFG funding to businesses. There are some key changes to the format of the CBIL loan however, of notable value; the removal of the requirement for directors to personally guarantee the loans (up to £250,000) and secondly, an increase in the government backed guarantee to 80%.
== Main Principles ==
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* Businesses of any age may apply for EFG.
* There is no maximum number of employees.
* The applicant’s turnover during the previous 12 months must not exceed £41m. This ceiling was increased from a £25m turnover in March 2012. Where an applicant is part of a corporate group (whether a parent, subsidiary or holding company), the £
* There are few sectoral restrictions although an eligibility check should be undertaken in the event of a customer operating in any of the following sectors or in any other instances in the event of doubt:-
** Fishing
** Agriculture
** Shipping
** Forestry
** Performing Arts
** Education
** Healthcare
** Social Care Services
** Coal and Steel
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• EFG loans are available to businesses which export but may not be used to finance large individual transactions which would be more suited to Trade Finance facilities.
• EFG finance may be used to refinance any loan facilities (apart from an SFLGS loan) where the Bank are facing such a large security shortfall that
=== EFG Parameters ===
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Borrowing Amount
* The minimum loan amount is £1,000
* The maximum loan amount is £1m.
* Any loans previously provided under SFLGS, even if still outstanding, do not count towards the £1m EFG limit.
* There is no restriction on the number of EFG facilities a customer may have so long as the aggregate of these facilities (based on the original amount granted, not the current outstanding balance) does not exceed £1m.
*Where more than one business wishes to apply for an EFG, each separate business may qualify for an aggregate amount of up to £1m, provided that the applicant is not part of a corporate group and each separate business meets the eligibility criteria.
* Where an applicant is part of a corporate group (whether a parent, subsidiary or holding company), the maximum figure available to the entire group is £1m.
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=== Drawdown ===
*
* The first tranche must be drawn no later than 6 months after the date of the EFG loan agreement. Failure to draw the loan within this period will necessitate the submission of a new application.
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=== Security ===
==== General ====
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* The Bank must be satisfied that all available personal assets have been pledged for conventional facilities, before considering lending under EFG.
* It is the Bank’s decision as to whether or not personal assets may be considered available as security for conventional lending.
* The Bank must be satisfied that the applicant is personally committed to the venture, and is not using EFG as a means of avoiding pledging personal assets.
* In the event that conventionally chargeable assets are jointly owned with a spouse or third party who is not directly connected to the business any refusal by that spouse/third party to charge those assets is sufficient to render these assets as not being available for conventional lending. For our purposes, a direct connection with the business is defined as partner, director or shareholder with 20% or more of the share capital. The same principle applies where an occupier of a conventionally chargeable asset refuses to grant consent to a charge.
* If the applicant is not prepared to allow all their available personal assets to be used to secure conventional lending, this renders them ineligible for EFG.
* In exceptional circumstances, personal guarantees may be taken in respect of EFG loans.
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* Applicants should be asked to pledge premises, machinery and other assets used in the business as security for the EFG loan, usually in the form of a fixed or floating charge.
* Where the assets to be pledged include property with any element of residential use (e.g. shop with flat above) consideration must be given as to whether or not the borrowing will be MCOB regulated. If the borrowing would be MCOB regulated, these assets must be pledged to secure conventional facilities only as it is not possible for EFG loans to be MCOB regulated.
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* It is essential that the direct debit in respect of the BIS premium be paid as it falls due for payment.
=== List of Eligible Lenders ===
The following main lenders will lend to eligible businesses under Enterprise Finance Guarantee:<ref>{{Cite web|url=http://www.businesslink.gov.uk/bdotg/action/gsdDetail?r.lc=en&type=GSD&searchQueryId=1021&searchTerm=enterprise+finance+guarantee&page=1&itemId=1081834978&searchId=3&refpage=4|title = Growing your business}}</ref>
* [[Airdrie Savings Bank]]
* [[Alliance & Leicester
* [[Bank of Baroda]]
* [[Bank of Ireland|Bank of Ireland (Northern Ireland)]]
* [[Bank of Scotland]]
* [[Barclays]]
* Business Enterprise Fund
* Business Finance Solutions
* [[Clydesdale
*[http://www.compassbusinessfinance.co.uk/efg Compass Business Finance]
* [[The Co-operative Bank]]
* DSL Business Finance
* [http://www.finance-for-enterprise.co.uk Finance For Enterprise]
* GLE oneLondon
* [[HSBC]]
* [[HBOS]]
* [[Lloyds Bank|Lloyds TSB]]
* [[Metro Bank (United Kingdom)|Metro Bank]]
* NEL Fund Managers
* Northern Bank (Northern Ireland)
* RBS/Natwest
* [[Santander UK|Santander]]
* [[Skipton Business Finance
* State Securities
* South West Investment Group
* [[Triodos Bank]]
* UK Steel Enterprises
* [[Ulster Bank]] (Northern Ireland)
* Whiteaway Laidlaw Bank
* Venture Finance
* [[Yorkshire Bank]]
== Comparison with its predecessor, The Small Firms Loan Guarantee Scheme, SFLG ==
The objectives of SFLG are summarised in the 2004 Graham Report
* "The aim of SFLG is to assist viable, debt-appropriate businesses that lack sufficient collateral to access loan finance in the market. In line with other interventions, SFLG should be used only in circumstances of market failure, where a viable business is unable to raise finance under conventional terms. SFLG forms part of the Government’s portfolio of interventions in the debt and equity markets, and, as such, it is designed to support the Government’s objectives."
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For loans written from April 2003 the guarantee rate was 75%.
* Earlier loans had guarantee rate of between 70% and 85%.
* There was no cap on the total of claims that could be submitted by each participating bank.
In its peak years of take-up (1995 and 1996), just over 7,000 loans were guaranteed in each year. The Graham Review saw a general tightening of eligibility criteria.
* In the year to March 2008, 2,619 loans were issued, with £207 million advanced.
* 1,100 of those loans were for amounts of less than or equal to £50,000, and a further 908 loans were for amounts of between £50,001 and £100,000.
* In the period April 2008 to January 2009, £178 million was advanced under the scheme, which represented 49% of the £360m limits allocated to all the participating banks.
The default rate on SFLG loans has been consistently high:
* The 2004 Graham Report quotes an average default rate of 30 to 35%, equating to bad debt losses after capital repayments and any recoveries of around 20%.
* The peak default rate was seen for loans written in 1989/ 1990, when the default rate exceeded 50%.
* The post-Graham loans, those loans written from December 2005 onwards, were envisaged to have a better default rate than earlier loans. But by August 2009 already 21% of all loans written since December 2005 had defaulted - similar to the experience of preGraham tranches.
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== Progress on EFG ==
In his Pre Budget Report of 9 December 2009 <ref>{{Cite web|url=http://www.hm-treasury.gov.uk/prebud_pbr09_speech.htm|title = HM Treasury}}</ref> the Chancellor advised that:
in January we launched the Enterprise Finance Guarantee which has already offered government guarantees on bank loans to over 6,000 businesses.
Today I have decided to extend this scheme for a further 12 months which will guarantee a further £500m of loans to small businesses.
==References==
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[[Category:Government of the United Kingdom]]
[[Category:Department for Business, Innovation and Skills]]
[[Category:Finance in the United Kingdom]]
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