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Enterprise Finance Guarantee

Pre Budget Report Announcement 9 December 2009

Recognising the continuing challenges that smaller businesses face in accessing finance, especially as they move towards finance to grow their business as the economy picks up, the Chancellor has announced that the Enterprise Finance Guarantee will be continued for a further 12 months enabling £500m of additional bank lending to SMEs between April 2010 and March 2011.

The Enterprise Finance Guarantee is a £1.3 billion loan guarantee scheme launched on 14 January 2009 and to run to 31 March 2010. It is aimed at facilitating additional bank lending to SMEs with no or insufficient security with viable business cases, to ensure they can get the working capital and investment that they need during a time of unprecedented tightened credit conditions. By providing lenders with a Government backed guarantee for 75% of the loan value, we are facilitating lending that would otherwise not be available. However, there is no automatic entitlement to receive a guaranteed loan and nor is there any pre-qualification process for it.

Decision-making on individual loans is fully delegated to participating lenders and made on commercial terms. The Enterprise Finance Guarantee is available until 31 March 2010 and businesses may choose to approach one or more of the 39 participating lenders.  

List of Lenders

EFG is aimed at businesses which do not have sufficient security, at the margins of commercial lending decisions, and at businesses that can ultimately repay the loan in full.

EFG supports lending to businesses with an annual turnover of up to £25m seeking loans of £1,000 through to £1million, repayable over a period of between 3 months and 10 years. In return for the guarantee, the Government charges the borrower a premium equivalent to two per cent per annum (1.5% for 2009) on the outstanding balance of the loan, and is assessed and collected quarterly throughout the life of the loan.

Under EFG, the following types of lending can be guaranteed:

• New term loans
• Refinancing the existing term loans, where the loan is at risk due to deteriorating value of security or where for cash flow reasons the borrower is struggling to meet existing loan repayments
  
• Conversion of an existing overdraft into a term loan to meet working capital requirements
  
• A guarantee on invoice finance facilities to support an agreed additional advance on an SME's debtor book.
• A guarantee on new or increased overdraft borrowing for the SMEs experiencing short term cash-flow difficulties.
  

These changes will increase the flexibility of working capital to SMEs which are viable but unable to provide sufficient security to lenders.

EFG allows lenders to take an unsupported personal guarantee on an EFG loan for up to the full value of a loan. In guaranteeing the loan, the taxpayer is taking a risk, so it is right the risk is shared by the lender and the borrower, as it would be for any commercial loan. However, lenders are not permitted to take a direct charge over a principal private residence for a new EFG loan.

Delivery of the Enterprise Finance Guarantee, including the decision on whether or not it is appropriate to use it in connection with any specific lending transaction, is fully delegated to the participating lenders. Capital for Enterprise Limited manage the operation of EFG on behalf of the Department.

For an initial appraisal on whether your business may be eligible for the Enterprise Finance Guarantee go to the Real Help 'Help with Finance' web page hosted on Business Link.