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Government Extends Loan Guarantee Scheme


BIS Department for Business Innovation and Skills - Expert Author

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The Government announced yesterday in the Pre-Budget Report that its successful guarantee scheme to support business loans will continue for another year.

The Enterprise Finance Guarantee (EFG) facility will support up to £500 million of bank loans to viable businesses between April 2010 and March 2011 which lack the security or track record to obtain commercial lending.

These are business loans that would not have otherwise have taken place.

Business Secretary Lord Mandelson said:

“Closing our business support schemes before the recovery is firmly established would be a false economy. It would risk derailing the recovery by stifling the investment plans of the businesses that create growth and jobs.

 “Although almost all firms report that they are able to get the lending they need, we are continuing this essential support to small businesses because for some of them securing credit remains difficult.

“We must ensure viable businesses are able to secure the lending they need to invest and grow as the economy picks up. The Enterprise Finance Guarantee has been welcomed by business and it will play a vital role in encouraging enterprise and investment and driving productivity and growth throughout the UK economy.”

The decision will enable up to £500 million of additional bank lending to companies which lack the collateral to get a normal commercial loan. It is available for firms with an annual turnover of up to £25m, looking for loans of up to £1m for a period of up to 10 years.

Since its launch in January 2009, more than 6,850 businesses have been offered loans totalling more than £692 million through the Enterprise Finance Guarantee scheme. More than £1 billion of eligible applications from almost 9,000 SMEs have been granted, are being processed or assessed.

Monitoring by the Department shows that around half of EFG loans have been used to help companies with working capital, while a significant proportion has been used for growth and investment, including business expansion, purchasing new equipment or developing a new project.

During the Pre-Budget Report, the Chancellor also gave an update on the other Real Help Schemes managed by the Department for Business, which were set up to help businesses during the economic downturn.

Trade Credit Insurance – under the current scheme, the Government provides top-up cover where companies have seen a reduction in their trade credit insurance cover.

Businesses have responded well over the past year, adapting to the changing level of trade credit insurance and are now actively managing their credit risks and reducing their dependence on trade credit insurance. As of 4 December, 105 applications have been accepted to the value of £18.5 million.

This scheme will close to new applications at the end of the year as planned.

Business Payment Support Service (Time to Pay) – Since the 2008 Pre-Budget Report, HMRC has reached agreements with 160,000 businesses employing hundreds of thousands of people to defer more than £4bn in businesses taxes (including corporation tax, VAT, and PAYE).  This is being continued.

Capital for Enterprise Fund – a £75 million equity investment fund.

To date fund managers have made offers totalling £69.9m to 45 businesses of which 28 offers are live totalling nearly £44.5 million. Of these, twelve businesses have received investment totalling £17.75m.

The Working Capital Scheme – providing guarantees on banks’ working capital loan portfolios.

Guarantees totalling over £2 billion have now been provided through the scheme and, as similar Government support is now available through the much broader Asset Protection Scheme, there will be no further guarantees offered under the Working Capital Scheme.

Prompt Payment – UK payment times for October 2009 as reported by Experian are the shortest since April 2008, with 19 out of 20 invoices paid by central government within 10 days. There are also now more than 700 signatories to the Prompt Payment Code.


Under the Enterprise Finance Guarantee (EFG) Government provides the lender with a guarantee of 75 per cent of the loan to viable SMEs on the margins of commercial lending. It can be used to support:

  • new loans
  • refinance existing loans at risk due to the deteriorating value of security
  • to convert part or all of an existing overdraft into a loan to release capacity to meet working capital requirements
  • to guarantee on invoice financing facilities to support an agreed additional advance on a companies debtor book
  • to guarantee new or increased overdraft borrowing for SMEs experiencing short term cash-flow difficulties

The guarantee is available through 37 lenders:

Airdrie Savings Bank ,  Alliance and Leicester Commercial Bank, Allied Irish Bank, Bank of Baroda, Bank of Cyprus UK, Bank of Ireland (NI only), Bank of Scotland, Barclays, Big Issue Invest, Bolton Business Ventures, Braveheart Investment Group, Business Enterprise Fund, Business Finance Solutions, Capitalise Business Support, Close Brothers, Clydesdale Bank, The Co-operative Bank, Cumbria Asset Reinvestment Trust, Donbac, DSL Business Finance, First Trust Bank (NI only), GLE oneLondon, HSBC, IGF Invoice Finance, Lloyds Group, NatWest, NEL Fund Managers, Northern Bank (NI only), The Royal Bank of Scotland, State Securities, South West Investment Group, Triodos Bank, UK Steel Enterprise, Ulster Bank (NI only), Venture Finance, Whiteaway Laidlaw Bank, Yorkshire Bank

The Capital for Enterprise Fund is a £75 million fund (£50 million from Government augmented by £25 million from the banks – Barclays, HSBC, Lloyds and RBS) to support viable business with equity or mezzanine investment, up to £2 million, aimed at releasing and sustaining growth.

The fund is open to all UJK domiciled SMEs with an annual turnover up to EUR 50 million and/or annual business balance sheet total not exceeding EUR 43 million, and less than 250 employees.

The Working Capital Scheme is a facility to provide banks with guarantees covering 50 per cent of the risk on working capital portfolios worth up to £20 billion.

The Trade Credit Insurance Top-up Scheme was introduced on 1 May 2009 to provide support to businesses that saw their whole-turnover trade credit insurance cover reduced by their provider. The scheme enables businesses to top-up their cover for a maximum of six months at a price of 1 per cent of the value of the cover.

The value of cover is determined by the level of cover provided by the underlying credit insurance policy, up to a maximum of £2 million.

Department for Business, Innovation & Skills

The Department for Business, Innovation and Skills (BIS) is building a dynamic and competitive UK economy by: creating the conditions for business success; promoting innovation, enterprise and science; and giving everyone the skills and opportunities to succeed. To achieve this it will foster world-class universities and promote an open global economy. BIS - Investing in our future.

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Article Published/Sorted/Amended on Scopulus 2009-12-10 15:04:00 in Business Articles

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