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EFG scheme picks up and points to SME growth

Figures show that lending through the Enterprise Finance Guarantee (EFG) scheme has begun to pick-up. The improvement suggests that SMEs are beginning to invest and confidence is gradually returning.

The figures show that lending through the EFG scheme for the second quarter reached £84 million, the highest since March 2011. The increase could indicate that more small businesses are now confident in the economy and points towards growth.

EFG is a demand-led scheme, which allows banks to lend to SMEs who would not otherwise receive credit, by providing the banks with a government guarantee for 75 per cent of the loan value. Since May 2010, over 12,400 SMEs have been offered EFG loans with a total value in excess of £1.2 billion.

Business Minister Michael Fallon said, “As a demand-led scheme, increased EFG lending shows that businesses are increasingly looking to invest and grow, and this is a positive indication for growth in the wider economy.

“Access to finance remains a crucial issue for SMEs and while I welcome the increased EFG lending by the banks, it is only scratching the surface of the problem. We have made the EFG scheme more flexible and easier for banks to use, and we are taking action to improve competition in the SME lending market through the business bank.”

However, in the short-term Mr Fallon added that high street banks are vital for helping businesses grow and keep the recovery going. Possessing a strong credit rating can help a business access the finance they need. Graydon provides some tips on how to improve a business’ credit score.

The Business Minister wrote to the main high street banks last year to express concern that EFG lending was declining and that SMEs were being starved of credit. During Q2, both Lloyds Banking Group and Santander significantly increased their EFG lending. Lloyds lent almost twice as much during Q2 (£13.9 million), when compared to the same quarter last year when it lent £7.1 million through the scheme. Santander also increased its use of EFG, reflecting its market position in SME lending. 

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