Small business bank account loans capped by government

Recently released government statistics show that its scheme for guaranteeing small business loans did not receive as much public funding during the darkest days of the financial crisis as the programme that preceded it.

The Enterprise Finance Guarantee Scheme, or  EFG, had been designed to disburse funds of  £1.3bn to struggling small business bank accounts by providing a 75 per cent governmental guarantee in order to encourage bank lending.

In comparison with the Business Department’s Small Firms Loan guarantee scheme, which spent £78.3m on defaulted loans preceding the recession in a similar 75 per cent coverage programme, the government found that there were discrepancies in how public funds were utilised in order to aid in business recovery during the economic downturn.

There had been concern amongst industry experts that small businesses that were otherwise eligible for an EFG loan were denied funding.  Additionally those businesses that had secured working capital through the program were faced with stringent requirements in order to guarantee the loan.

The scheme’s performance would partly inform a new inquiry into the assistance methods employed by the government said Adrian Bailey, Commons Business select committe  Labour chairman.  He added in a recent statement that there were concerns about its operation in regards to turning away viable businesses, but recent small business owner feedback has differed, prompting the government to releasing an additional £200m in funds for the scheme.  Mr Bailey concluded by stating that the new inquiry will test those reports of success.

A spokesman for the Business Department also commented recently, stating that the coalition government had succeeded in the delicate balancing act of limiting default costs and encouraging an increase in approved bank loans.  The spokesman added that almost £800m in bank lending was encouraged by the EFG scheme over a 15 month period, financing that small businesses may not have had been able to secure without the scheme’s help, and often with little to no taxpayer risk.

The financial assistance report for the Business Department detailed the rise in total financial support for businesses through loan guarantee schemes and government grants.  In comparison to last year, the number rose by £440 million to £4.24bn.

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