Government cap ‘undermining’ lending plan, says FPB

The recently published Enterprise Finance Guarantee Scheme (EFG) is facing renewed criticism amid claims the Government has imposed a ‘cap’ on guaranteed loans.

Launched in mid-January, the initiative provides a 75% Government guarantee on individual loans of up to £1 million to viable businesses with annual turnover of up to £25m.

It is hoped the scheme will thaw the UK’s frozen lending market and get the economy moving again.

However, the Forum of Private Business (FPB) claims that restrictions on EFG lending effectively mean that Government losses from the scheme are capped at just 10%. It fears the ‘cap’ will deter banks from using the scheme to lend to small businesses that they might consider as still high risk.

Phil Orford, Chief Executive of the FPB said: ‘Small businesses need to access finance in order to continue playing this important role in the UK's economy, but this cap flies in the face of what we thought the EFG was trying to achieve – reducing the banks' sense of risk when dealing with struggling yet viable small businesses.’

In a recent poll by the FPB, 2% of respondents said they had seen an improvement in the availability of credit since the beginning of February, while almost one in three (32%) firms had experienced a deterioration.

Last month, Business Secretary Lord Mandelson claimed that some 400 loans worth in excess of £40m had already been lent under the scheme. ‘These figures show the Enterprise Finance Guarantee is already making a difference to businesses,’ he said.