smallbusiness.co.uk: Helping your business think big

This month the government launched a finance package to help struggling small businesses access bank loans, but SMEs say they aren’t seeing the benefits.

The Enterprise Finance Guarantee (EFG) scheme saw the government earmark £1.3 billion to underwrite loans of up to £1 million until March 2010.

Stephen Harkin, owner of industrial and automotive lubricant supplier Saxon Oil believes nothing has changed since the government introduced the scheme.

He says: ‘There is a huge knowledge gap about the EFG on a local level. When we approached our bank manager, all he could talk about was the old Small Firms Loan Guarantee (SFLG) scheme.’

Despite the company being profitable, Harkin says his bank has taken away the company’s overdraft. He says: ‘They won’t let us go overdrawn by a single penny – what sort of attitude is that? It flies directly in the face of what the government is trying to achieve.’

‘[It seems] you can get money if you’re a big company, but not if you’re small. Unless credit is released, many small employers will go to the wall,’ Harkin adds.

Joanne Ward, financial controller of manufacturing company Wesley Services, met the company’s bank manager to discuss its overdraft. Ward says that he dismissed the EFG.

‘He said: “We don’t like these schemes and we’re not interested in them.” We didn’t push it any further – we’re in overdraft at the moment and we didn’t want to give them any excuse to call it in,’ Ward says.

Dan Scarfe, founder of trade mark registration company Trade Mark Direct, has just managed to secure £50,000 through the EFG – having previously been rejected for a loan under the SFLG.

Scarfe believes the new scheme is better as it has given the banks more of an appetite for taking risks. ‘For any businesses that failed to get a loan before, I would say it is now worth applying again,’ he adds.

Phil Orford, chief executive of the Forum of Private Business, says that, while the government’s financial packages are a welcome step, many small businesses are still being bracketed as risky propositions.

Jon Moulton, founder of private equity firm Alchemy Partners, is sceptical of the government’s schemes. ‘We have Mandelson back, who was always noted for the endless stream of initiatives, most of which nobody could remember a month later.

‘He doesn’t seem to have a changed a great deal. Yes, there have been a string of small things but this is a very big thing. I think the government is trying every trick it can find in the toolbox but so far it hasn’t done enough to avoid what will be a nasty recession. All it has done, unfortunately, is guarantee a very slow recovery from it given the amount of public debt we are going to have.

David Hall, managing director for venture capital firm YFM, believes the EFG is a bold move, but is unsure that it will increase bank lending.‘They may just do what they are going to do anyway. You can’t change the lending criteria of the banks by giving them a guarantee,’ he says.

For Chris Hannant, head of policy at the British Chambers of Commerce, it is still too early to tell if the scheme is working. ‘If in a month’s time only five per cent of the money has gone then the government needs to look at ways it can tweak and modify the scheme until the money goes out of the door,’ he says.

The EFG loan is currently “available” through Barclays, Clydesdale/Yorkshire Bank, HBOS, HSBC, Lloyds TSB, RBS/Natwest and Northern Bank and has temporarily replaced the SFLG.

The type of lending previously provided under the SFLG – to businesses that lack collateral and/or track record – is still available under the new scheme. The EFG provides loans of between £1,000 and £1 million – compared with an upper limit of £250,000 under the SFLG. It is available to businesses with a turnover of up to £25 million.

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