Enterprise Finance Guarantee

The Enterprise Finance Guarantee (EFG) is a loan guarantee scheme intended to facilitate additional bank lending to viable SMEs lacking adequate security for a normal commercial loan.

EFG was launched in January 2009 to help viable SMEs obtain the working capital and investment that they need during a time of unprecedented tightened credit conditions. It now aims to help such SMEs seeking finance for investment and growth as the economy recovers.

EFG is a targeted measure to be used by lenders on a discretionary basis. It is not designed for the majority of viable businesses to whom banks should lend. It is also not a mechanism through which businesses or their owners can choose to withhold security a lender would normal lend against; nor is it intended to facilitate lending to businesses which are not viable and that banks have declined to lend to on that basis.

The Enterprise Finance Guarantee will continue until 2014-15, facilitating, subject to demand, up to £1.5m additional lending over the next 3 years.

EFG Eligibility Criteria

EFG supports lending to viable businesses with an annual turnover of up to £41m seeking loans of between £1,000 and £1million. It is available to businesses in most business sectors.

However, EFG is subject to certain sector restrictions arising from the EU de minimis State Aid rules, the Industrial Development Act 1982 (which provides the statutory basis for EFG) and also for national policy reasons. A list of the main sector restrictions is provided in the EFG Business Sectors web page.

EFG is used by lender when addressing the debt finance requirements of viable businesses which although they do not have sufficient security, can demonstrate to the lender that they have capacity to ultimately repay the loan in full.

Types of EFG Facilities Available

Under EFG, the following facilities can be guaranteed, repayable over a period of between three months and ten years until otherwise indicated:

• New term loans (unsecured and partially secured) for working capital or investment purposes
• Refinancing of existing term loans, where the loan is at risk due to deteriorating value of security or where for cash flow reasons the borrower is struggling to meet existing loan repayments
• Conversion of part of all of an existing utilised overdraft onto a term loan in order to release capacity in the overdraft to meet working capital requirements
• Invoice Finance Guarantee providing a guarantee on invoice finance facilities to support an agreed additional advance on an SME's debtor book, to supplement the invoice finance facility on commercial terms already in place. (Available for terms up to three years)
• Overdraft Guarantee providing a guarantee on new or increased overdraft borrowing where the SME is viable but has inadequate security to meet a lender’s normal requirements for the level of overdraft requested. (Available for terms up to two years)

An EFG lender may not necessarily offer the full range of lending types provided for under the EFG rules if they are not compatible with their normal commercial lending practices.

Application Process

Businesses seeking debt finance can approach one or more of the participating lenders.

The lender will typically assess the business against their normal commercial lending criteria for instance with regard to the viability of the business, the ability to service the loan, and the availability of existing security, in order to determine whether they wish to lend.

Where a lender determines that use of EFG likely to be appropriate, they confirm eligibility and record details of the borrower and their facility via a secure web portal through. An overview of the EFG application process is available here.

However, there is no automatic entitlement to receive a guaranteed loan and nor is there any pre-qualification process for it. Decision-making on individual loans is fully delegated to participating lenders and integrated with the commercial decision to lend. BIS plays no role in the application or decision making process.

The Government Guarantee

By providing lenders with a Government-backed guarantee for 75% of the loan value, EFG facilitates lending that would otherwise not take place. EFG is intended to support lending to businesses which can ultimately repay their loan in full. The guarantee provides protection to the lender in the event of default by the borrower - it is not insurance for the borrower in the event of their inability to repay the loan.

The borrower pays a 2% annual premium which partially covers the cost of providing the guarantee. The premium is assessed and collected quarterly in advance throughout the life of the loan based on the outstanding capital balance of the loan. The borrower is provided with a premium schedule by the lender as part of their loan documentation and collection is made by Direct Debit under the description "BIS LOAN GUARANTEE". The interest rate charged and any other fees and charges applied to the loan are a commercial matter for the lender.

Personal Guarantees / Security

EFG allows lenders to take security, including personal guarantees, in connection with an EFG backed loan. In looking to take that security the lender is required to apply their normal commercial policies in determining the extent and value of security available.

The practice of taking personal guarantees from business owners and others associated with a business is an established mechanism for ensuring a degree of personal commitment to the repayment of the loan by the business and, in EFG, this means that there is a three-way sharing of risk between borrower, lender and the Government.

The exception from normal commercial practice is that lenders are not permitted to take a direct charge over a principal private residence for a new EFG backed loan. However, the EFG rules only apply to any loan or facility guaranteed under EFG. It does not apply to any non-EFG lending.

In guaranteeing the loan, the taxpayer is taking a risk, so it is right the risk is shared by the lender and the borrower, as it would be for any commercial loan. The taxpayers’ liability to defaults is capped in accordance with the de minimis regulations, to which EFG is subject. This acts to ensure commercial rigour is applied in relation to lending decisions and that undue risk and cost is not placed on the taxpayer.

Enterprise Finance Guarantee: Further help

The delivery of EFG , including the decision on whether or not it is appropriate to use it in connection with any specific lending transaction, is fully delegated to the participating lenders. Capital for Enterprise Limited manages the operation of EFG on behalf of the Department.

Further information is available on the Business Link website.

For lenders

Individuals within a participating lender should contact their central processing team or other designated internal EFG expert who can obtain further information from CfEL.

For businesses

All decisions relating to the use or otherwise of EFG in individual cases are fully delegated to the participating lenders. Businesses are advised to approach one or more of the participating lenders to discuss their borrowing needs. If a business which has received an EFG backed loan subsequently has any issues with their loan, including issues relating to premium collection or alterations to their repayment profile, then they should raise them with their lender and not with BIS or CfEL.

Please note that neither BIS nor Capital for Enterprise Ltd (CfEL) can advise on individual eligibility queries. Nor will BIS or CfEL intervene in the commercial relationship between Borrower and Lender in the event of disputes. Customers dissatisfied with the experience of dealing with their bank should raise their concerns initially through the bank’s own customer complaints procedure.

If the matter is not resolved businesses with a turnover of under €2 million and fewer than ten employees have the option of taking their complaint to the Financial Ombudsman Service or on 0845 080 1800. Businesses may also wish to seek legal advice if there is a contractual dispute.

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