With less than a 0.5 per cent take-up since its inception, the Enterprise Finance Guarantee (EFG) scheme isn’t really doing its job – to help SMEs access finance.
The scheme aims to facilitate lending to smaller businesses that are unable to obtain finance from their lender due to having insufficient security to meet the lender’s normal requirements. By providing the lender with a government-backed 75 per cent guarantee against the outstanding facility balance, the idea is that the EFG can turn a “no” into a “yes”.
Tough questions need to be asked about the efficacy of the EFG
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However, awareness of the EFG is extremely low, which is possibly one of the reasons for the poor figures. A new referral scheme from the British Business Bank also seems to be a cop-out and one which allows the bank, established to “make finance markets work better for smaller businesses”, to simply tick a box indicating that “assistance” has been provided by effectively passing the buck to others. Job done, engagement targets met.
Perhaps the reason for such low awareness of the scheme is simply because the banks don’t push the product. The British Business Bank proudly declares that, since 2009, the EFG has unlocked financial assistance for 26,000 SMEs. Yet in the last quarter of 2015, it was reported that just 446 SMEs participated in the EFG scheme. There are over five million SMEs in the UK, which makes these take-up rates staggeringly low.
So, why do banks not push it? There are probably myriad reasons, but the fact that they are still heavily focused on getting their own house in order is likely to be the main one. Devoting time to promoting a confusing, non-standard scheme that doesn’t follow the same format as the rest of their business products just isn’t a priority.
Tough questions need to be asked about the efficacy of the EFG from beginning to end. Perhaps then something real can be done to ease the frustration of SMEs trying to source funds.
Another likely reason the banks don’t push the EFG scheme may be that it does not impact significantly on their lending targets – only the 25 per cent of the funding that is secured by the bank qualifies. Who can blame them for not spending time promoting the product?
The mis-selling scandals that have been hitting the press of late may also be a contributory factor. Unless business banking teams receive sufficient training to be able to push the EFG scheme, without the fear of getting it wrong, it’s always going to be a last resort discussion with SMEs looking for much-needed funding.
Surely the whole scheme needs rethought, both from the point of view of SMEs and also from the banks’ perspective. And surely the proposed referral scheme is simply dodging the real issue?
If the government is to use this route to boost SME lending, then it needs to work for everyone. And the shocking uptake statistics show that it simply isn’t.
• Gareth Magee is a partner at business adviser and accountant Scott-Moncrieff