Government in business finance boost
Dec 14 2010
Banks could have greater encouragement to lend to small businesses
Small businesses could be set for a boost in lending prospects following a widening of access to a loan guarantee scheme.
Business and Enterprise Minister Mark Prisk says the government will increase access to the Enterprise Finance Guarantee (EFG) scheme to support community development finance institutions (CDFIs).
Through the scheme, the government guarantees 75 per cent of a bank loan, thereby encouraging banks to lend to small businesses with a turnover below £25 million.
CDFIs are typically not-for-profit groups funding businesses and individuals, often in disadvantaged communities, that have been turned down by mainstream finance institutions.
From April 2011, the government is to increase the total level of defaults it will cover within any single EFG portfolio of loans from 13 per cent to 20 per cent on the first £1 million.
Smaller lenders, including CDFIs, had raised concerns about the limitations of the 13 per cent cap, given that they fund businesses with increased risk.
‘We’re trying to target the EFG to be more supportive of CDFIs because they inherently take on more risky clients,’ says a Department for Business spokesperson. ‘For the first £1 million for all lenders, we will now protect 20 per cent of that. By increasing the cap to 20 per cent, CDFIs should have more confidence in the scheme.’
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