Enterprise Finance Guarantee Lending

Michael Fallon Excerpts

Tuesday 18th December 2012 Written Statements

[The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)]

I am today announcing the publication of enterprise finance guarantee (EFG) lending figures by individual banks.

The Government are committed to ensuring that viable small and medium-size enterprises (SMEs) can obtain the finance they need for working capital and investment. EFG plays an important part in this, with over 9,900 SMEs being offered loans with a value in excess of £1 billion since May 2010.

The Government have made a number of important changes to the EFG scheme during the last 12 months. EFG loans are now available to an additional 3,800 businesses with an increase in the turnover limit from £25 million to £41 million. The maximum £1 million lifetime scheme limit has been replaced by a rolling £1 million limit. We also raised by 7%, the level of lenders EFG annual loan portfolios to which the Government guarantee applies from 13% to 20%.

This change was made to address the legitimate concern of lenders that they would breach their annual claim limit. In doing this, the Government committed to a more even share of the risk of default with the lenders, with the aim of removing that as a barrier to lending.

EFG is a demand-led scheme, accounting for 1% to 2% of overall SME lending. While utilisation is directly linked to subdued demand for credit in the wider economy, overall EFG lending levels are disappointing. There have been some positive signs, with a number of the main banks increasing EFG lending this financial year, albeit from a low level.

It is important that banks lend responsibly and make use of EFG when it is appropriate to do so, but it is clear from the EFG lending figures that a number of lenders could and should be doing more. The publication of individual bank EFG lending figures is intended to help achieve this. In parallel, we are exploring with the banks ways of flexing EFG to address debt serviceability, which is the principal reason behind loan declines. Further detail will be provided in the new year.

The Department for Business, Innovation and Skills, already publishes a wide range of EFG lending figures, which are updated on a quarterly basis. Publication of individual EFG lending figures will further enhance this, allowing business customers to identify which banks are making most use of the scheme, and also enable participating lenders and new market entrants to identity new opportunities, thus increasing choice and competition.

This marks a further step towards greater transparency in bank lending, specifically to SMEs. I am today announcing the publication of EFG lending figures by individual bank.