Historical Context
The Enterprise Finance Guarantee (EFG) scheme was launched by the UK government in January 2009, following the global financial crisis of 2007-2008. It was designed to replace the Small Firms Loan Guarantee (SFLG) scheme and aimed to address the liquidity issues faced by small and medium-sized enterprises (SMEs) by ensuring they could access much-needed financing despite a lack of sufficient collateral.
Types/Categories of Support
Loan Types
- Term Loans: Typically offered for investments in fixed assets or to support expansion.
- Overdraft Facilities: Providing working capital and short-term funding.
- Invoice Finance Facilities: Leveraging outstanding invoices as collateral for loans.
- Asset Finance: Using business assets as collateral.
Key Events
- 2009: EFG scheme was launched.
- 2010-2015: Various amendments and improvements to the scheme.
- 2020: Adjustments made to support businesses during the COVID-19 pandemic.
Detailed Explanations
Eligibility Criteria
- Businesses must be UK-based.
- Annual turnover should not exceed £45 million.
- The funding is for business purposes, i.e., growth, capital investment, or managing cash flow.
Guarantee Mechanism
The government guarantees 75% of the loan value, reducing the risk for the lender and encouraging them to extend credit.
Application Process
- Approach participating lenders.
- Assess eligibility and business plans.
- Lender performs usual due diligence.
- Approval and terms negotiated, including the government guarantee.
Importance and Applicability
The EFG scheme plays a vital role in the UK’s economic landscape by enabling SMEs, which are critical to job creation and economic growth, to secure funding that might otherwise be unavailable.
Examples
- Tech Startup Expansion: A tech company utilized EFG to finance the development of a new software product.
- Manufacturing Growth: A manufacturing SME secured a term loan under EFG to purchase new machinery, enhancing productivity.
Considerations
- Repayment Terms: Loans typically range from three months to ten years.
- Interest Rates: Set by the lender and potentially higher due to perceived risk.
- Fees: A guarantee fee is charged to the business annually.
Related Terms
- Small Firms Loan Guarantee (SFLG): The predecessor to the EFG scheme.
- SME Finance: Financial services specifically tailored for small and medium-sized enterprises.
- Government Loan Schemes: Initiatives by the government to provide financial support.
Interesting Facts
- Since its launch, the EFG scheme has facilitated over £3 billion in loans to UK businesses.
- The scheme has helped thousands of businesses survive during economic downturns, including the recent pandemic.
Inspirational Story
Jane’s Artisan Bakery: Jane, an aspiring entrepreneur, struggled to secure funding for her artisan bakery due to a lack of collateral. Through the EFG scheme, she obtained a loan, which allowed her to open her business. Today, her bakery is a local success, employing 15 people and generating significant revenue.
Famous Quotes
- Vince Cable, Former UK Secretary of State for Business, Innovation and Skills: “The EFG scheme is a vital tool for supporting the backbone of our economy – small businesses.”
FAQs
What is the Enterprise Finance Guarantee?
How can a business apply for an EFG loan?
What businesses are eligible?
References
- UK Government EFG Overview
- British Business Bank EFG Details
- Vince Cable’s economic policies and their impact.
Summary
The Enterprise Finance Guarantee is a significant initiative aimed at promoting the growth and stability of SMEs in the UK. By mitigating the risks associated with lending to businesses without sufficient collateral, the EFG scheme encourages financial institutions to provide the essential capital that SMEs need to thrive and contribute to the overall economy.
