Rob
07-08-2010, 12:49 PM
There was a report this week that for the six months leading up to the UK General Election lending under the UK Government's Enterprise Finance Guarantee Scheme fell by 23%. Naturally everyone is up in arms saying that the banks aren't supporting it etc.
A couple of points spring to mind about the fall:
1. As with all things new, there is always a surge during the early period and perhaps the scheme is now settling into a more business as usual mode, hence the reduction
2. The cost of accessing funding via the scheme is high - a 2% premium is levied per annum on the outstanding loan balance. This is on top of the normal arrangement fees that banks will levy in addition to the interest rate margin. Business owners, who are looking after penny at the moment, may be questioning the value
3. The government guarantee is for 75% of the outstanding balance so the banks are still out for 25%. Businesses that meet the criteria may still not be eligible because its clear that it's down to the banks to make the first call as to whether they wish to support - it's a commercial decision by the bank. So, the basics of lending still come into play i.e. can the business afford to back? Just because a partial guarantee is in place banks are not going to throw caution to the wind and support every request
4. It can take 12 to 18 months for a bad lending decision to come to the surface. I suspect that some of the inital EFG loans given out are now showing signs of stress. If a business had to look to EFG then by its very nature there is a higher risk of failure, so banks are now probably being even more cautious in their approach to EFG requests
So with EFG, great if you can get it but don't expect banks to fall over themselves to offer it and if you do go for it expect it to cost you.
Anyone had any experiences with this scheme or any thoughts to add?
A couple of points spring to mind about the fall:
1. As with all things new, there is always a surge during the early period and perhaps the scheme is now settling into a more business as usual mode, hence the reduction
2. The cost of accessing funding via the scheme is high - a 2% premium is levied per annum on the outstanding loan balance. This is on top of the normal arrangement fees that banks will levy in addition to the interest rate margin. Business owners, who are looking after penny at the moment, may be questioning the value
3. The government guarantee is for 75% of the outstanding balance so the banks are still out for 25%. Businesses that meet the criteria may still not be eligible because its clear that it's down to the banks to make the first call as to whether they wish to support - it's a commercial decision by the bank. So, the basics of lending still come into play i.e. can the business afford to back? Just because a partial guarantee is in place banks are not going to throw caution to the wind and support every request
4. It can take 12 to 18 months for a bad lending decision to come to the surface. I suspect that some of the inital EFG loans given out are now showing signs of stress. If a business had to look to EFG then by its very nature there is a higher risk of failure, so banks are now probably being even more cautious in their approach to EFG requests
So with EFG, great if you can get it but don't expect banks to fall over themselves to offer it and if you do go for it expect it to cost you.
Anyone had any experiences with this scheme or any thoughts to add?