In January 2009 the UK government introduced the Enterprise
Finance Guarantee scheme (EFG) as the cornerstone for businesses to trade out of
the recession. Companies are still struggling to raise vital finance with the
support of the scheme.. Business owners are well advised to consider alternative
options for raising finance which is where Business Refinancing comes
In January this year the UK government introduced the
Enterprise Finance Guarantee scheme (EFG). The EFG replaced the Small Firms Loan
Guarantee Scheme (SFLG) with the commitment to helping small businesses raise
the funds they require to trade through the recession. The EFG is based on the
government guaranteeing up to 75% of the value of a commercial loan offered by a
company’s bank. The company’s directors will normally be required to personally
guarantee the remaining 25% of the loan.
Despite the Governments claims that the EFG would be the cornerstone for
businesses to trade out of the recession, companies are still struggling to
raise vital finance with the support of the scheme. According to a recent report
published by the Department for Business, Innovation and Skills, in the year up
until the 3rd April 2009 a total of 2,369 loan guarantees to the value of GBP
178m had been issued, under both the Small Firms Loan Guarantee Scheme and the
Enterprise Finance Guarantee scheme. This figure is significantly less than the
GBP 205m guaranteed in the previous year. It is also far below the scheme’s GBP
360m budget set by the Government in March 2008.
For this financial year the outlook now is just as worrying. The latest Bank
of England figures show that new lending to companies continued to fall in May
2009, continuing on from in April. UK banks remain reluctant to provide
businesses with new loan facilities despite the government backing. I have
recently had a number of discussions with small business owners which back up
this analysis. It seems common place that new loan and commercial mortgage
applications with the backing of solid business plans are being consistently
declined (often at the last minute) with little or no rational explanation from
Based on the current evidence it seems very much that the banking system is
reluctant to back any business opportunity unless it has almost a cast iron
prospect of success. This situation is certainly stifling entrepreneurial
activity and thus undermining the driving force required to kick start the
economy and move it out of recession.
Given this situation, business owners are well advised to consider
alternative options for raising finance. Business refinancing can help in this
area. Business refinancing generally involves raising cash secured against
tangible business assets thus giving the bank real security and the comfort
required to release funds. Examples of business refinancing include:
– Asset refinancing – the process of borrowing against the value of
any fixed assets which are owned by the business.
– Invoice financing – the process of raising money based on a
company’s outstanding invoices. Invoice financing could allow a company to draw
down up to 90% of the invoice value immediately on the issue of a valid invoice.
– Trade financing – enabling a business to receive up to 80% of the
confirmed order value up front to pay the suppliers required to fulfil the
It is clear that businesses will be unable to trade out of the current
economic environment until the availability of cash through lending starts to
ease. However it seems that they are unable to rely on Government initiatives
such as the Enterprise Finance Guarantee scheme to allow them to access the
funds they need for expansion and growth. Unfortunately Business Refinancing
will not be suitable for all. However it is certainly an option that should be
reviewed by all in the current climate.
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