Making the Enterprise Finance Guarantee scheme work should be the Chancellor’s priority for SMEs in this week’s Budget instead of unveiling eye-catching new policies, according to a corporate finance expert.
Alistair Darling should forget about announcing any new initiatives to help Britain’s small and medium-sized businesses in next week’s Budget statement - and concentrate instead on ensuring the much-heralded Enterprise Finance Guarantee scheme works properly.
The £1.3 billion scheme was launched by the Department for Business, Enterprise and Regulatory Reform in an attempt to ease access for businesses to finance in the wake of the credit crunch and the banks’ unwillingness to lend.
Under the Enterprise Finance Guarantee, the Government says it will guarantee lending to businesses to ensure that they can get the funding they need, with loans of between £1,000 and £1 million available until next April.
But Mark Johnson, corporate finance and lending manager at Clifton Asset Management, said he has yet to see any evidence of businesses being able to access cash through the scheme.
“I have been working with several companies on their EFG applications but to date, not a single one has been successful,” he said.
“The main problem is that there is no consistency among the banks. Some are imposing their own lending criteria on top of the criteria set down by BERR, some are demanding personal guarantees from businesses even when they say they are not needed, and others will only deal with applications from existing customers.
“We have even had anecdotal evidence from people who have been told by their bank that they cannot help, because the Government has not given them sufficient information on the scheme.
Mr Johnson also believes that many of the bank staff processing EFG applications are wary of approving them, for fear of taking any risks which could cost them their job.
He added: “Bank employees need to know that they have the backing of their directors to lend under the terms of scheme. Once they feel comfortable within the role they will then be able to focus more on the needs of the customer - and not on self-preservation.
“This whole process is hugely frustrating and time-consuming for businesses and once again otherwise good, viable companies are being denied cash due to the failings of the processes which have been put in place.
“Rather than rolling out any more eye-catching initiatives for SMEs in his Budget speech tomorrow, Alistair Darling would be better advised to ensuring the Enterprise Finance Guarantee actually works.”