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Bank Lending

Government-backed loans less attractive, says UK200Group Members

By CreditMan Thursday, March 24, 2016

Members of the UK200Group of independent accountancy and law firms have today commented on the decline in the uptake for government backed-loans.

Small business lending via the Enterprise Finance Guarantee (EFG) loan scheme has continued to drop in the last year with only 1,835 UK small firms granted EFG loans in 2015, compared to a peak of 2,030 loans in the second quarter of 2009.

The EFG scheme sees the government act as a partial guarantor on up to 75 per cent of bank loans between £1,000 and £1.2m made to small businesses who cannot offer assets as security.

Despite its dwindling success the Chancellor has confirmed the EFG will be extended until 2018.

Duncan Montgomery, Tax Partner at UK200Group member firm Whittingham Riddell, said:

“The EFG scheme has served a good purpose, but SMEs tend to look for regular financing first, which is frequently on competitive terms. Particularly if you think that each SME already has a banking relationship, and that those banks have very effective sales arms, the government scheme works on the edges a little more, and as the economy picks up there will be less need for such guarantees.

“With consistent GDP growth since 2012, the economy is showing good, if tentative signs, and many businesses are moving firmly ahead.

“However, it is important that SMEs regularly review their current financial packages, to ensure that bank security is reduced where loans are paid off, so as to free up assets for any future borrowings. Too many small businesses leave charges outstanding when they could be cleared down.”

Jonathan Russell, Partner at UK200Group member firm ReesRussell, said:

“Whilst small firms generally are less interested in borrowing, the terms of the Government Guaranteed loans were changed to make them significantly less attractive to businesses and professional advice was very much that these loans were only suitable for individuals who had absolutely no assets, who would not even get over the initial hurdles with the banks.”