Small firms urged 'do legal homework' before applying for Enterprise Finance Guarantee scheme

Published: 23rd June 2009

Small businesses applying for the Government's Enterprise Finance Guarantee (EFG) scheme are being urged to 'do their homework' in the face of stiff assessment criteria.

The Government launched the EFG scheme in January to help recession-stricken small firms. Under the scheme, the loan still comes from the bank but the Government underwrites 75 per cent of it.

But North West law firm Mace & Jones said banks are applying rigorous assessments to EFG applications and remain cautious about lending. Despite the 75 per cent Government guarantee, each participating bank is subject to an overall limit on recovery under the scheme of nearer to 10 per cent of all of its EFG loans. Mace & Jones corporate partner Mike Yardley said businesses can easily fail to win approval.

"It is critical businesses do their homework and prepare the business for careful investigation by the bank," he said. "This fund is aimed at businesses with cash flow problems. Whilst cash flow problems may be expected, other matters, such as problems with employees, property and commercial disputes and weak terms and conditions of supply, may cause the bank legitimate concerns. For this reason, a business should consider whether it needs to take legal advice, to discuss how to resolve any problems, if it is to benefit from the EFG."

Barclays said last week that it was currently issuing around £2m of EFG loans per day through the scheme, which is available to businesses with an annual turnover of no more than £25m, seeking loans of between £1,000 and £1m.

According to the Department of Business, Enterprise and Regulatory Reform (BERR), 2059 small firms have now been offered loans collectively worth £186m under the scheme. In total, the scheme aims to see the Government provide £1 billion of guarantees to support £1.3 billion of bank lending by March 2010.

The EFG scheme was recently extended to allow social enterprises to apply for finance under it.

For further information in preparing your business for an EFG scheme application contact Mike.yardley@maceandjones.co.uk or any member of the Mace & Jones corporate team in Manchester: 0161 214 0500, Liverpool: 0151 236 8989 or Knutsford: 01565 634234