Enterprise Finance Guarantee

The Enterprise Finance Guarantee (EFG) is a loan guarantee scheme aimed at facilitating additional bank lending to viable SMEs with no or insufficient security to secure a normal commercial loan. It was launched in January 2009 to help viable SMEs obtain the working capital and investment that they need during a time of unprecedented tightened credit conditions. EFG is a targeted measure and is not designed for the majority of viable businesses to whom banks should lend; nor is it intended for businesses who are not viable and that banks are rejecting on that basis.

EFG is available until 31 March 2011.

EFG supports lending to viable businesses with an annual turnover of up to £25m seeking loans of £1,000 through to £1million and is available to businesses in most business sectors.

However, EFG is subject to certain sector restrictions arising from the EU De Minimis State Aid rules, the Industrial Development Act 1982 (which provides the statutory basis for EFG) and also for national policy reasons

Types of EFG Facilities Available

Under EFG, the following facilities can be guaranteed, repayable over a period of between 3 months and 10 years until otherwise indicated:

• 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. This will supplement the invoice finance facility already in place. (Available for terms up to 3 years)
• A guarantee on new or increased overdraft borrowing for the SMEs experiencing short term cash-flow difficulties. (Available for terms up to 2 years)

An EFG lender may not necessarily offer the full range of lending provided for under the EFG rules if to do so would be incompatible with their normal commercial lending practices.

Application Process

Businesses may choose to approach one or more of the 44 participating lenders  to discuss their borrowing needs.

The lender will typically assess the business against their normal commercial lending criteria for instance with regard to the viability of the business, ability to service the loan repayments, and availability of existing security, in order to determine which form of lending, if any, is most appropriate.

Where a lender determines that use of EFG is appropriate, each lender (usually via the lender’s central EFG processing team), is provided with access to the EFG web portal through which they administer the EFG eligibility criteria, and through which they can check EFG eligibility at any point in the loan application process.  An overview of the EFG application process is available here. 

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 are made on commercial terms.  BIS plays no role in the application or decision making process.

The Government Guarantee

By providing lenders with a Government backed guarantee for 75% of the loan value, we are facilitating lending that would otherwise not be available. EFG is intended to support loans to businesses that can ultimately repay the loan in full, and not intended to provide protection to the borrower in case of default.

In return for the guarantee, the Government charges the borrower a premium equivalent to two per cent per annum on the outstanding balance of the loan, and is assessed and collected quarterly throughout the life of the loan. However, any fees, interest rates, other charges made by a lender are a matter for the lender concerned.

Personal Guarantees / Security

EFG allows lenders to take an unsupported personal guarantee on an EFG backed 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.

Lenders are not permitted to take a direct charge over a principal private residence for a new EFG backed loan. However, the EFG rules only apply to that portion of any loan or facility guaranteed under EFG. It does not apply to any non-EFG lending.

Enterprise Finance Guarantee: Further help

The delivery of EFG , 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 manages the operation of EFG on behalf of the Department.

Business Link can provide information and advice to businesses seeking finance including under EFG. For an initial appraisal on whether your business may be eligible for the Enterprise Finance Guarantee go to the Business Link website.

For Lenders – Individuals within a participating lender should contact their central processing team or other designated internal EFG expert who can obtain further information from CfEL.

For Businesses – All decisions relating to the use or otherwise of EFG in individual cases is fully delegated to the participating lenders. Businesses are advised to approach a number of the participating lenders to discuss their borrowing needs.  Businesses that receive an EFG backed loan should discuss any resulting EFG issues with their lender, including issues relating to premium collection or refunds.

Please note that neither BIS nor Capital for Enterprise Ltd (CfEL) can advise on individual eligibility queries. Nor will BIS or CfEL intervene in the commercial relationship between Borrower and Lender in the event of disputes. Customers dissatisfied with the experience of dealing with their bank should raise their concerns initially through the bank’s own customer complaints procedure.

If the matter is not resolved businesses with a turnover of under £1 million have the option of taking their complaint to the Financial Ombudsman Service or on 0845 080 1800. Larger businesses might wish to seek legal advice if there is a contractual dispute. Alternatively customers always the option of seeking support from other lenders.

Enterprise Finance Guarantee: List of Lenders

Airdrie Savings Bank
Allied Irish Bank
Bank of Baroda
Bank of Cyprus UK
Bank of Ireland (NI only)
Bank of Scotland
Barclays
Big Issue Invest
Bolton Business Ventures
Braveheart Investment Group
Business Enterprise Fund
Business Finance Solutions
Capitalise Business Support
Centric Commercial Finance
Close Brothers
Clydesdale Bank
The Co-operative Bank
Cumbria Asset Reinvestment Trust
Davenham Group
DSL Business Finance
Donbac
East London Small Business Centre
First Trust Bank (NI only)
Foundation East
GE Capital
GLE oneLondon
HSBC
IGF Invoice Finance
Lloyds TSB
NatWest
NEL Fund Managers
Northern Bank (NI only)
The Royal Bank of Scotland
Santander Corporate Banking
Skipton Business Finance
SME Invoice Finance
South West Investment Group
State Securities
Triodos Bank
UK Steel Enterprise
Ulster Bank (NI only)
Venture Finance
Whiteaway Laidlaw Bank
Yorkshire Bank

Tags: Government loans, Loans

Category: Debt & Financial Services