Small business loans under government-backed loan scheme collapse by 70%
The value of loans offered to small businesses last year through the UK Government’s small business lending programme has fallen to a record low of just £226m (year end June 30 2019) says accountants and business advisors, Moore.
Loans offered to small businesses per annum under the Enterprise Finance Guarantee (EFG) have fallen 70% from £742m nine years ago (see graph below), and from a peak of £759m in the scheme’s first full year of operation following its launch 10 year ago.
Moore says that many small businesses are in need of extra funding as Brexit uncertainty has hit order books and created cashflow problems. Many of their customers are holding off on making non-essential purchases or sitting on unpaid bills until there is further clarity on Brexit.
Since the banking crisis some banks have become more hesitant to lend to SMEs, and as the economy has slowed there is a fear that non-performing loans will increase.
Moore explains that there are some key issues holding back interest in EFG loans, one of which is a 2% annual fee that SMEs have to pay to the Government. When the base interest rate is 0.75% this fee acts as a substantial disincentive to borrowers. The EFG scheme only guarantees to pay banks 75% of their losses on EFG loans.
Moore says, therefore, that there is scope for both Government and banks to more actively market EFG to small businesses.
Sue Lucas, Partner at Moore, comments: “Small businesses must get access to the lending that will help see them through what is an extremely difficult period for them as the economy struggles.”
“The Government and banks have to learn from previous experience during the last recession, where lending conditions tightened and credit-worthy small businesses were unable to borrow.”
“The terms and conditions for EFG should be looked at again to see how it can be made both more attractive to banks and small businesses.”
Moore’s 2019 Owner Managed Business report shows that the impact of Brexit negotiations is a cause for concern for 55% of OMBs, while 91% say the Government has not provided them with enough information to allow them to plan effectively.
Sue Lucas added: “Small businesses are suffering from continued uncertainty, something that more than half of the 660 business we surveyed have told us.”
“Our research also shows that small businesses are stalling on making investment decisions until there is Brexit clarity – this will have been impacted by the level of bank loans available. Perhaps more funding would help jumpstart investment and encourage growth.”
Loans offered to small businesses via the Enterprise Finance Guarantee have fallen to a record low of £226m