Obtaining finance can be a challenge for small businesses. But there are lots of myths around about different types of finance, so it’s useful to know what the facts are.
Experienced commercial banker and BizSmart Core Advisor, Ian Priest of Independent Banking Consultants explains how the Enterprise Finance Loan Guarantee Scheme works.
The Enterprise Finance loan Guarantee Scheme is a government-backed scheme that aims to help small businesses get finance.
It’s been around for a while and replaced the old Small Firms Loan Guarantee (SFLG) Scheme in 2009.
Let’s look at how it works and how and why you, as a small business owner, can use the scheme.
Banks are not always very keen on the scheme, so our aim here is to look at why this is and dispel some of the myths that are circulating about being missold an EFG.
What is an EFG?
The basics are as follows:
- You can borrow between £1,000 and £1,000,000
- Terms are 3 months to 10 years
- It’s aimed at businesses with a turnover of less than £25million
- It provides a 75% government guarantee to banks
- The borrower pays a monthly fee to BERR
- It’s available until March 2018
The future of the EFG
It has been announced that a newly revamped SFLG will replace the EFG next March so we are awaiting details of this.
How the EFG currently works:
- All decisions are delegated to the lender.
- There is no automatic right of approval.
- Lender must agree the business is viable –
- And that the loan can be repaid.
- Conventional security must be used first
Banks must look at business viability using their normal lending criteria and be totally satisfied that any loans can be fully repaid.
It is only if the lender deems that no, or insufficient, security is available can they look to the EFG scheme. Security would include business and personal assets and may also extend to the use of supported or unsupported personal guarantees.
However the above elements are open to interpretation and two different lenders may view the same case very differently. So there are some flaws in the lending process.
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