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December 21, 2012

Business minister urges banks to "up their game" on lending to small firms

Business minister Michael Fallon has written to the chief executives of the five main high street banks to encourage them to increase their use of the Enterprise Finance Guarantee (EFG) scheme.

Lending levels under the scheme have been disappointing since 2009 – even though the government, in partnership with the banks, has made a number of changes to the scheme to make it more flexible and easier to access.

Fallon said: "It is crucial that banks play their part in making finance available to businesses and support growth in the economy. Banks have to lend responsibly but it is clear that a number of lenders need to up their game."

The EFG scheme allows banks to extend lending to small and medium-sized enterprises (SMEs) by providing a government guarantee which allows banks to lend to businesses which otherwise lack the security or track record for a standard commercial loan.

However, the value of EFG loans drawn over the past four years has fallen dramatically – from £737,129,000 at the peak in 2009-10, to £201,903,000 in 2012-13. And the number of loans has fallen too – from over 7,000 made in 2009/10 to less than 2,000 in 2012/13.

Michael Fallon said: "The EFG scheme has been made more flexible and is now available to even more businesses. Publishing lending data should encourage these financial institutions to do more to help business thrive."

Despite these changes, the level of lending through the EFG scheme for this financial year is forecast to be broadly equal to last year. The government has made £500m available for guarantees for 2012-13 but EFG lending is expected to be only £315m.