British Business Bank lending scheme delivers £1.1 billion boost to the economy: Fallon calls on banks to redouble their efforts

Press release 19 February 2013

A government scheme to help small businesses access finance has delivered a net benefit of £1.1 billion to the economy. Every £1 invested by the government has delivered £33.50 for the economy.

These findings are contained within new independent research on the Enterprise Finance Guarantee (EFG) scheme published today. The scheme has helped over ten thousand businesses access £1.04 billion of loans since May 2010.

Business Minister Michael Fallon is calling on banks to increase their lending through this successful scheme.

Other findings include

  • the scheme is successfully reaching businesses operating at the margins of traditional bank lending. Over 80 per cent of EFG users would not have been able to secure a loan through conventional bank lending, mainly because they lacked sufficient collateral
  • businesses which have received an EFG loan have grown at similar levels to other businesses. The scheme is not supporting inferior quality businesses
  • the scheme has created an additional 6,500 jobs – equivalent to 0.96 jobs per recipient business
  • it has saved 12,375 jobs since its introduction – equivalent to 1.84 jobs per recipient business
  • it has a net economic benefit of £1.1 billion to the economy, and is real value-for-money for the taxpayer as every £1 invested by the exchequer delivers a benefit of £33.50 to the economy

Business Minister Michael Fallon said:

Enterprise Finance Guarantee loans are delivered through the banks, and I want to see them making more use of the scheme. This latest research shows that the EFG is helping precisely those businesses who can’t get finance elsewhere. It is getting money to where it is needed, saving jobs, and delivering a huge benefit for the wider economy.

Clearly the demand is there for this type of financial support so we must start to see an increase in take-up. I have already begun publishing EFG lending by each individual bank, because businesses should know which bank they are best off approaching and I will continue holding the banks to account until lending levels improve.

The EFG scheme was introduced in response to the credit crunch, and has remained in place to help tackle the difficulties small business face in accessing finance from the banks.

Michael Fallon wrote to the biggest banks last year urging them to increase lending through the EFG scheme. In December, the government published EFG lending data broken down by bank, to ensure increased transparency.

This latest research demonstrates the value of the EFG scheme not just for individual businesses but to the wider economy. The government now expects the banks to redouble their efforts to provide finance to viable businesses through the EFG scheme.

Notes to editors

  1. The full research report is available online: Enterprise Finance Guarantee (EFG) scheme: economic evaluation
  2. Latest EFG lending stats can be found online: Enterprise Finance Guarantee Statistics
  3. Since May 2010, 10,215 small and medium sized businesses (SMEs) have been offered EFG loans with a total value of £1.04 billion.
  4. These loans address a specific market failure in the provision of debt finance, focusing on the 1 per cent to 2 per cent of SMEs on the margin of debt finance eligibility. The EFG scheme does not compete against standard bank lending, nor does it provide a subsidy to banks.
  5. The research was carried out by an independent team of researchers at Durham University on behalf of BIS.
  6. 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. EFG is a demand led scheme complementary to commercial lending – not a replacement. EFG accounts for 1% to 2% of total SME lending.
  7. Businesses that meet the basic eligibility criteria do not have an automatic entitlement to receive an EFG guaranteed loan.
  8. Decision making on individual loans is the responsibility of 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.
  9. The government’s economic policy objective is to achieve ‘strong, sustainable and balanced growth that is more evenly shared across the country and between industries’. It set four ambitions in the ‘Plan for Growth’ (PDF 1.7MB), published at Budget 2011:

    • to create the most competitive tax system in the G20
    • to make the UK the best place in Europe to start, finance and grow a business
    • to encourage investment and exports as a route to a more balanced economy
    • to create a more educated workforce that is the most flexible in Europe.

    Work is underway across government to achieve these ambitions, including progress on more than 250 measures as part of the Growth Review. Developing an Industrial Strategy gives new impetus to this work by providing businesses, investors and the public with more clarity about the long-term direction in which the government wants the economy to travel.