British Business Bank lending scheme points to positive signs for SME growth

Press release 19 August 2013

Small and medium sized businesses are benefiting from increasing use of a government finance scheme by banks to improve availability of finance.

New figures published today show lending through the Enterprise Finance Guarantee (EFG) scheme for the second quarter of 2013 reached £84 million, the highest since March 2011. Meanwhile, the EFG trade credit scheme launched in April, has already helped over 1,500 small business customers of Screwfix and B&Q owner Kingfisher by enabling increased total credit limits of over £10 million.

EFG is a demand-led scheme which allows banks to lend to SMEs who would otherwise not receive credit, by providing the banks with a government guarantee for 75 per cent of the loan value. Since May 2010, over 12,400 SMEs have been offered EFG loans with a total value in excess of £1.2 billion. It has enabled Kingfisher’s Screwfix and TradePoint businesses to offer credit facilities or higher credit limits to trade businesses that might otherwise fall just outside the companies’ credit criteria.

Both Lloyds Banking Group and Santander have continued to significantly increase their EFG lending, with Lloyds lending almost twice as much in the second quarter of 2013 (£13.9 million) compared to the same quarter last year (£7.1 million). Santander has also ramped up its use of EFG to a level which better reflects its market position in SME lending.

As a demand-led scheme, increased EFG lending shows that businesses are increasingly looking to invest and grow, and this is a positive indication for growth in the wider economy. Access to finance remains a crucial issue for SMEs and while I welcome the increased EFG lending by the banks, it is only scratching the surface of the problem. We have made the EFG scheme more flexible and easier for banks to use, and we are taking action to improve competition in the SME lending market through the business bank. But in the short term we need the high street banks to help our businesses grow and keep the recovery going. Michael Fallon Business Minister

Michael Fallon wrote to the main high street banks last year to express concern that EFG lending was declining and that small and medium size businesses were being starved of credit.

The separate EFG trade credit scheme continues to benefit small businesses in the construction sector. Started with Kingfisher Group in April 2013, it has already enabled 1,537 existing business customers of B&Q and Screwfix to increase credit limits to £10.2 million and 437 new customers have been offered credit limits of £1.06 million in total.

As a result, there has been considerable interest from other trade credit providers in joining the EFG trade credit scheme and the Department for Business hopes to confirm details of new providers shortly.

Further Information

Notes to editors

  1. In Q2 2013 (April – June), £83.66 million was lent to businesses by banks through the EFG scheme, the highest since Q1 2011.
  2. In Q2 2013 (April – June), over 900 businesses were offered EFG loans with a value of £98.74 million. There is a maximum six month period between loan offer and draw down.
  3. A full breakdown of EFG lending is available from ‘Understanding the Enterprise Finance Guarantee’.
  4. Compared to the same quarter last year, EFG lending increased from £71.53 million to £83.66 million, an increase of 17 per cent.
  5. A recent independent study found that the EFG scheme had delivered a net £1.1 billion benefit to the economy, and is value for money as every £1 invested by government delivers £33.50 to the economy. Download the full report.
  6. The changes the government has made to the EFG scheme over the past year include:
    • increasing the turnover limit from £25 million to £41 million
    • replacing the £1 million per business lifetime scheme limit with a rolling £1 million outstanding limit
    • raised the level from 13 per cent to 20 per cent of the lenders annual lending portfolio to which the government guarantee applies
  7. EFG is one of a range of government-backed schemes totalling £2.9 billion that are being brought together under the Business Bank initiative. A further £1 billion of new capital will be deployed by the Business Bank in partnership with the private sector to further increase the amount of finance available and the choice of finance providers to businesses.
  8. 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’, 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.