There is a lot of talk about the Seed Enterprise Imitative Scheme (SEIS) and Enterprise Imitative Scheme (EIS), I’ve even written a couple of blogs about them too. Let’s be honest about it, they are very appetising. But not every SME is eligible. In the last budget they introduced a new incentive for SMEs to help them expand called the Enterprise Finance Guarantee (EFG). Strangely it is exactly the same as the Business Enterprise Scheme (BES) the government introduced a few years ago. At least the banks and the government know how it works and it is just a bit of re-branding.
That aside, it really is an excellent scheme though not generally publicised, or for that matter actively supported by the high street banks in my experience. I’m told there has been a change recently. In fact since 2009 some 18,000 SMEs have been supported to the tune of £1.8b, according to the official website.
So what is it?
“The 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 government will guarantee 75% of lending to a SME, meaning the business has a 25% exposure if the venture is not successful.
Most business sectors are eligible though not all. The borrowing can be for almost anything business related:-
- New term loans (unsecured and partially secured) for working capital or investment purposes including R&D.
- Re-financing 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 or an existing utilised overdraft into 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 a 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).
The business must operate in the UK, with turnover less than £41m (where did that random number come from?) and with repayment periods for 3 months to 10 years.
What they don’t say on the website is that they will only lend to existing businesses, no new enterprises.
The SME still must have a viable business plan and must still meet banking criterion for lending. It is not a way to circumvent normal credit checks. The banks will still credit score in precisely the same manner as all other loan applications; including ability to repay and loan period. They may still ask for personal guarantees too but not on personal property.
The cost, the bank will charge their normal tariff interest and charges plus a further 2% annual premium that goes to support the scheme.