EFG Scheme by UK Government Fails to Provide Credit to SMBs

The EFG scheme was iintroduced by UK government to provide backing of bank loans for small businesses. It was introduced in January 2009, in wake of banking crisis, so as to stimulate lending to small businesses by banks with a turn over up to £25m, by providing government guarantees. The banks with listed turnover can claim for support on loans of between £1,000 and £1m, under this scheme.

According to a leading banker, the lending under the Enterprise Finance Guarantee(EFG) scheme had dropped by 60%, in the past 12 months. It fell from £254m in the first quarter of 2009 to £186m in the first quarter of 2010. It further decreased by 20 per cent in the next three months, to £149m.

The reasons for failure of this scheme as viewed by accountants and financial advisors are:

  • SMBs are willing to pay the debts instead of taking new loans. This is the main reason for reduced demand of EFG scheme.
  • The other reason cited was, that the SMB owners failed to make proper case to the banks for getting benefits under EFG scheme.

Since the scheme was created the government was successsful in providing backup for more than £1bn of loans. It has also announced an additional support of £200m for the June’s emergency budget.