The Enterprise Finance Guarantee explained

If you're finding it difficult to raise finance at the moment, you're not alone. According to statistics from the Forum of Private Business (FPB), almost a third of businesses have reported problems getting access to funding since September 2008. Use this guide to learn more about the Enterprise Finance Guarantee (EFG), the government's scheme to encourage banks to lend more to small businesses.

What is the Enterprise Finance Guarantee?

  • The EFG is a £1.3bn package put in place to replace the old Small Firms Loan Guarantee (SFLG) to encourage banks to lend to businesses that are struggling to access finance.
  • The scheme will guarantee up to 75% of a loan between £1,000 and £1m, and is available until March 31, 2010 across 26 lenders

What does it cover?

The EFG covers a range of lending including:

  • New loans with terms of up to ten years
  • Refinancing of existing loans
  • Conversion of existing overdrafts into term loans to free up cashflow

How do I know if I'm eligible?

  • The EFG is available over a period of three months to three years to businesses with a turnover of up to £25m
  • While there is no official criteria to determine your business's eligibility - the BERR website says the decision over whether to lend is 'fully delegated to the participating lenders', i.e. your bank - you do need to be able to show them your business is viable.
  • You should be able to show an up-to-date business plan; a good order book and be able to demonstrate a strong past performance.

What is it for?

  • In contrast to the old SFLG, which provided to help small businesses grow, the EFG is there to ease cashflow problems for firms which would ordinarily be able to secure funding
  • If you're looking for growth finance or a loan to start a new project, approach your bank: the message from the banks is each business will be assessed on its own needs

Who isn't eligible?

  • Because of a lack of clear lending criteria, it's difficult to say who would be turned down, but farms or other agricultural businesses may not be eligible if they have already sourced finance from the EU
  • The advice is to speak to our bank manager as soon as possible to find out if you qualify

 

Checklist

  • Prepare to provide the bank with all the information you would normally provide for a loan application:
    • A detailed business plan
    • Financial history
    • Cashflow projections
    • Accounts
  • Be ready to explain exactly what you need the money for
  • Have figures prepared to show that you will be able to repay the bank
  • Consider taking advice from accounting or legal professionals to improve your chances of securing a loan

FAQ

If I have been turned down for a loan or refinancing, is my business likely to get support from the EFG?
It depends: the EFG is designed to help firms which have been affected by poor liquidity, but which would ordinarily secure a loan. Do not make any assumptions. Your business will undergo rigorous assessment. You need to prove your business - even while it is suffering from cashflow issues - is otherwise strong and viable.

Jargon buster

Annual percentage rate (APR): the rate of interest you will pay on your loan over a year: this will help you determine the full cost of finance

Resources

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