Enterprise Finance Guarantee
EFG is a loan guarantee scheme to facilitate additional lending to viable small and medium size enterprises lacking adequate security or proven track record for a normal commercial loan.
The Enterprise Finance Guarantee Scheme was launched in January 2009 to facilitate additional lending to viable businesses lacking adequate security or proven track record for a standard commercial loan. Over 18,000 SMEs have been offered EFG loans with a total value of £1.88 billion.
EFG is a demand led scheme complimentary to commercial lending - not a replacement. EFG accounts for 1% to 2% of total SME lending. Decision-making on individual loans is fully delegated to the participating lenders and is integrated with the commercial decision to lend. Where the lender determines the business is viable (able to meet the monthly loan repayments and repay the loan in full) but is lacking adequate security to meet the lenders standard lending requirements, they can consider providing a loan under EFG. The Government plays no role in the loan decision process.
The Government provides the lender with a guarantee for 75% of each individual loan, subject to a cap set by an Annual Claim Limit. The borrower pays a 2% per annum pro-rata premium to BIS as a contribution towards the cost of providing the Government guarantee. The borrower is responsible for repayment of 100% of the loan, not just the 25% outside the coverage of the Government guarantee.
Under EFG, lenders are entitled to take security, including personal guarantees. This is standard commercial practice and an established mechanism for ensuring a degree of personal commitment to repayment of the loan by the business. In EFG this means there is a three-way risk sharing between borrower, lender and the Government.
EFG Eligibility Criteria
Businesses that meet the basic eligibility criteria do not have an automatic entitlement to receive an EFG guaranteed loan. Eligibility for EFG will be determined by the lender. The following is a guideline only. EFG is open to viable businesses that:
- Operate in the UK
- Have a turnover of up to £41 million
- Are seeking finance between £1,000 and £1million
- Repayment terms from 3 months to 10 years (less for overdraft and invoice finance facilities)
- Operate in a sector that is eligible for EFG (most sectors are eligible)
For more information: http://www.bis.gov.uk/efg
