Loans offered by flagship SME lender fall to record low

Enterprise Finance Guarantee offers just £55.6 million to SMEs

Small businesses have been urged to use a declining government lending scheme to plug any Brexit-related funding gaps.

The value of loans offered by the Enterprise Finance Guarantee (EFG) scheme fell to a record low of£55.6 million in the final quarter of 2018, according to research from online business finance marketplace Funding Options.

The amount was 78 per cent down on the scheme’s peak of £255 million in the second quarter of 2009, and 2.2 per cent down on the same period in 2017.

The Enterprise Finance Guarantee scheme was launched in 2009 to help small and medium sized businesses access bank lending following the credit crunch. The scheme provides loans to businesses that don’t have enough security to meet traditional lenders’ normal requirements. The government provides a guarantee worth 75 per cent of the loan to lenders to underwrite their risk.

Funding Options chief executive Conrad Ford said: “The EFG was a successful concept when it was launched but it is now having less and less of an impact. The EFG was a saviour of many small businesses during the last credit crunch.”

Many small businesses may now need extra funding to deal with the Brexit-related volatility in orders and payments from customers, says Funding Options.

Some businesses’ clients are holding off on making non-essential purchases to preserve cash and that is having a knock-on effect on suppliers.

“Brexit represents a fantastic opportunity for this great scheme to come into its own once again and ensure that shortfalls in cash flows and gaps in lending can be covered up” said Funding Options CEO Conrad Ford.

Funding Options says that more needs to be done to help ensure businesses who want to take out extra finance to cover any Brexit-related cashflow disruption are able to do so. Small businesses should be made more aware of schemes such as the EFG, as well as other alternative finance options that are available, it says.

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A lack of funding to help cover cashflow issues is one of the factors contributing to the increasing number of businesses entering insolvency. In 2018 17,439 businesses became insolvent, a five-year high, according to The Insolvency Service statistics.