Launched way back in January 2009, the government's Enterprise Finance Guarantee (EFG) is one of those hidden gems of government support for small businesses that often goes unnoticed.
In fact, so little is it noticed that loans agreed under the scheme in the year to 30 June amounted to only £226m, which is down 70% from the peak 10 years' ago. There is currently approximately £300m of further headroom available to lend this financial year (until April 2020) and the government is keen to see it used!
So, what is it? The EFG is designed to help small and medium sized businesses that are viable, but unable to obtain finance from their lender because they don't have enough security to meet the lender’s normal credit requirements. The scheme supports facilities of between £1,000 and £1.2m and works by providing the lender with a Government-backed guarantee for up to 75% of the outstanding debt, potentially enabling a “no” credit decision to become a “yes”.
As this helpful infographic shows, there are some important points to keep in mind:
The decision on whether to lend or not remains with the lender - the government isn't lending the money. The idea is that the existence of the guarantee will tip the scales for the lender in the borrower's favour.
The borrower is responsible for the full amount of the outstanding debt. In the event of default, the lender will pursue all of its normal procedures for recovery before calling on the guarantee. This could include appointing a receiver. On the upside, if the guarantee is called in, there is no recourse to the borrower.
There is an annual Guarantee Fee of 2% of the outstanding facility, which is in addition to any interest and arrangement fees charged by the lender.
To be eligible, your business must be UK based with an annual turnover of no more than £41m and operate within an eligible sector. Most sectors are supported, but there are a few exclusions, most notably non-trading businesses, for example, property development vehicles.
You can be borrowing over a period of three months to 10 years and using a loan, overdraft, asset finance or invoice finance type product, so there are very few restrictions here. Certain types of trade finance are excluded, but only because other government backed schemes are available for this.
There are many situations where we have helped clients get the loan they require by using the EFG. We have supported start-ups as well as established businesses and have seen situations where the Banks themselves have forgotten about using the scheme. With our involvement, an application to use the EFG has been completed and the business has then been approved for the funding.
If you think an EFG could help you secure your borrowing requirements, we will work through your funding requirements, just like an independent, impartial Business Bank manager would, and if we calculate that you can repay a loan, but don't have the security, we'll introduce your requirements to an accredited EFG lender and help you process the application.