Enterprise Finance Guarantee (EFG)
The Enterprise Finance Guarantee (EFG) is a loan guarantee scheme intended to facilitate additional bank lending to viable SMEs with insufficient or no security with which to secure a normal commercial loan.
EFG is a targeted measure to be used by lenders on a discretionary basis. It is not designed for the majority of viable businesses to whom banks should lend. It is also not a mechanism through which businesses or their owners can choose to withhold security a lender would normal lend against; nor is it intended to facilitate lending to businesses which are not viable and that banks have declined to lend to on that basis.
The Enterprise Finance Guarantee will continue until 2014-15, providing up to £600 million of additional lending to around 6,000 SMEs in 2011-12 and, subject to demand, over £2 billion in total over the next 4 years.
Some inforamation relating to EFG is provided below, but please refer to the BIS website| for more detailed information
EFG Eligibility Criteria
EFG supports lending to viable businesses with an annual turnover of up to £25m seeking loans of between £1,000 and £1million. It is available to businesses in most business sectors. However, EFG is subject to certain sector restrictions arising from the EU de minimis State Aid rules, the Industrial Development Act 1982 (which provides the statutory basis for EFG) and also for national policy reasons. A list of the main sector restrictions is provided in the EFG Business Sectors web page|.
EFG is used by lenders when addressing the debt finance requirements of viable businesses which although they do not have sufficient security, can demonstrate to the lender that they have capacity to ultimately repay the loan in full.
Types of EFG Facilities Available
Under EFG, the following facilities can be guaranteed, repayable over a period of between three months and ten years until otherwise indicated:
- New term loans (unsecured and partially secured) for working capital or investment purposes
- Refinancing of existing term loans, where the loan is at risk due to deteriorating value of security or where for cash flow reasons the borrower is struggling to meet existing loan repayments
- Conversion of part of all of an existing utilised overdraft onto a term loan in order to release capacity in the overdraft to meet working capital requirements
- Invoice Finance Guarantee providing a guarantee on invoice finance facilities to support an agreed additional advance on an SME's debtor book, to supplement the invoice finance facility on commercial terms already in place. (Available for terms up to three years)
- Overdraft Guarantee providing a guarantee on new or increased overdraft borrowing where the SME is viable but has inadequate security to meet a lender’s normal requirements for the level of overdraft requested.. (Available for terms up to two years)
An EFG lender may not necessarily offer the full range of lending types provided for under the EFG rules if they are not compatible with their normal commercial lending practices.
Application Process
Businesses seeking debt finance can approach one or more of the participating lenders|.
The lender will typically assess the business against their normal commercial lending criteria for instance with regard to the viability of the business, the ability to service the loan, and the availability of existing security, in order to determine whether they wish to lend. An overview of the EFG application process is available here|.
However, there is no automatic entitlement to receive a guaranteed loan and nor is there any pre-qualification process for it. Decision-making on individual loans is fully delegated to participating lenders and integrated with the commercial decision to lend. BIS plays no role in the application or decision making process.
