Lending to small firms declines despite scheme

A GOVERNMENT scheme to boost lending to small companies is on the wane, according to a lending advisory service.

Lending under the Enterprise Finance Guarantee (EFG) scheme dipped to £77.8m in the final three months of last year – a drop of 24 per cent from 12 months earlier.

The EFG programme sees the government guaranteeing three quarters of the value of some loans to small and medium sized companies with turnover of less than £25m.

Yet the falling level of loans under the EFG is resulting in the government expanding it to larger firms, with a turnover of up to £41m. Finance advisory group Syscap says this could crowd out lending to smaller companies.

“The EFG scheme’s attraction was that it targeted just those smallest companies,” said Syscap chief executive Philip White. “Throwing the doors of the scheme open to bigger companies might lead to more lending in total but less lending to the smallest companies.”

Over one in five small firms cite a lack of finance as a barrier to growth, according to the Federation of Small Businesses. Around four in 10 loans from small firms are turned down, the FSB says.