The Enterprise Finance Guarantee (EFG) is a UK government-guaranteed lending scheme purposely to help small but feasible businesses that experience difficulty in securing funds by facilitating bank loans of between £1,000 and £1 million.
The credit platform is intended to support banks to lend to small businesses that are worthy and feasible but have the difficulty to be able to secure bank financing. The introduction of Enterprise Finance Guarantee Scheme (EFG) in November 2008 by the government to small and medium enterprises. In most cases, the Small and Medium Enterprise have tight conditions when accessing for credit. The EFG is the platform that replace the previous Small Firm Loan Guarantee.
In EFG scheme, the participating bank has the authority to decide on whether or not to lend the money to the applying entrepreneur. The Government will meet some of the amount of the bad debt incurred by the lender on the scheme loan. In this scheme, the borrower will be paying the interest and fees to the participating bank according to the terms and conditions. In addition, the borrower will also make payments to the Government for some fees.
How does EFG work?
The terminology Enterprise Finance Guarantee loans is taken from its primary feature which is a government guaranteed credit. If the credit goes default, the government will take most of any losses that may occur. It means that the exposure of the lender is only part of the risk. Hence, in theory will offer loans that they would not otherwise agreed.
Moreover, the lender will still have to be accountable in the due diligence process and should not give loans out to anyone who asks. The EFG loans is pathway that will widen the criteria to some extent will help more businesses get finance.
Under the credit scheme, the lending decision rests solely in the hands of the finance provider. The borrower is responsible in paying the interest and fees to the lender as a standard. It also includes paying a quarterly fee to the Government.
Although EFG loans can be expensive than other business loans, the scheme make the difference between high probability of getting the finance and not.
Features and benefits of EFG
· You can borrow from £25,001 to £600,000 over one to 10 years term.
· The fix interest rate of the Bank of England is made available. Though, it may sometimes become dependent on circumstances.
- Flexible arrangements is always available.
- It offers capital repayment holidays.
- The business’s turnover must not exceed £41 million for the EFG loan application approval
- The Enterprise Finance Guarantee will allow borrowing even without the available security even if the business is still newly operational. There are banks that offer their partial guarantee for the loan application.
- The Enterprise Finance Guarantee scheme can lend to businesses of all ages. There is a high probability of assurance that will not receive a refusal feedback because you are newbie business person.
The setting of eligibility criteria for Enterprise Finance Guarantee loans is in the hands of the individual lenders. Along with the criteria setting is they also refer to their normal commercial lending policies and practices.
The common criteria that should you need to consider when planning to apply for the loan:
- Operating in the UK
- Turnover should be less than £41 million
- Pursuing for a financing amount between £1,000 and £1.2 million
- Willing for the loan repayment period between 3 months and 10 years
- Overdraft, invoice finance and revolving credit facility repayments between 3 months and 3 years
- Your business operates in an qualified industry (check if the lender have limited lists of specific business sector to finance).
Other than the eligibility criteria, the borrower must remember the following principles to be complied before knocking at the door and filling up the forms:
- The business plan must be viable
- The business plan should meet the usual commercial requirements for a loan
- The applicant must prepare on convincing the lender to lend the desired amount even without security.
- EFG loans can be used for refinancing
- You can use EFG loans to refinance existing overdraft borrowing, but not at the expense of terminating the facility completely. It is important that working capital finance facility should be in place if the business requires it.