Enterprise Finance Guarantee

The Enterprise Finance Guarantee (EFG) is a UK government-guaranteed lending scheme intended to help smaller viable businesses who may be struggling to secure finance, by facilitating bank loans of between £1,000 and £1 million.

It is intended to enable banks to lend to viable small businesses who are unable to provide the security that the bank would otherwise require. The government announced the launch of the Enterprise Finance Guarantee Scheme (EFG) in November 2008 to provide targeted intervention for viable SMEs, close to the margins on risk, who could not access debt finance during times of tight credit conditions. EFG replaced the previous Small Firms Loan Guarantee scheme.

Under the scheme, the decision on whether or not to lend rests solely with the participating bank. The Government meets some of the bad debt costs incurred by the lender on the scheme loans. The borrower pays interest and fees to the participating bank on normal commercial terms; and in addition the borrower pays a quarterly fee to the Government.

In total, for its first period from January 2009 to March 2010 the Government announced that it would support a total of up to £1,300 million loans under the scheme. For its second period from April 2010 to March 2011 the Government announced that it would support a total of up to £500m loans under the scheme.

In his Pre-Budget Report, presented 24 November 2008, the Chancellor announced a Small Business Finance Scheme. This went live as the Enterprise Finance Guarantee on 14 January 2009.

The government offer to bear 75% of the risk of default on each eligible individual loan, subject to a cap on the total claims that may be made by each participating bank.

EFG has replaced the Small Firms Loans Guarantee (SFLG) Scheme. It has wider criteria, in that it offers guarantees of loans of up to £1 million, rather than £250,000, and is available to businesses with turnover of up to £41m, rather than £5.6m. It provides lesser support to lenders, in that the total amount paid by the Government to each participating bank may not exceed 9.75% of the total amount advanced by that bank on all loans in the period, whereas SFLG contained no such cap. It allows the participating bank to insist, for the first time, on personal guarantees.

The scheme is open to businesses with an annual turnover of up to £41m, seeking loans of £1,000 to £1 million, repayable over a period of 3 months to 10 years. State aid rules restrict or exclude businesses in certain industries such as agriculture, coal and transport.

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