UK Small Businesses Struggle to Get Loans

The press in the United Kingdom is now reporting that a flagship support scheme intended to support lending for small businesses saw a 60 percent decrease in lending over the last year. The figures come from the business department and regard the Enterprise Finance Guarantee scheme that was lending at a level of just over £250 million during the 1st Quarter of 2009, but in the 1st Quarter of 2010 that level was at less than £190 million. Even after this, levels dropped for 3 consecutive months to under £150 million. This has small business economic observers worried about the ability of these entities to survive in the present economy.

The purpose of this scheme, often known by the abbreviation EFG, is to give state backing for loans from banks that are designed to be used by small businesses. Part of the drop in lending is indeed natural, say observers, as businesses have chosen to pay off their debts rather than taking out new loans, but some financial experts say that a wide number of business owners hurried with their applications and did not properly present a sound case to banks as to why they should be eligible for EFG scheme loans.

According to some in the accounting field who are familiar with small business situations, a great deal of these businesses did not realize that the EFG was not actually designed to help them get emergency cash to stay afloat. Instead, the loans were intended to go to businesses that had taken the time and money to put together a solid business plan to present to lenders – otherwise, say experts, this finance would never be allowed for a hasty, scarcely detailed business plan.

This cumbersome application was somewhat overwhelming for many businesses which were low on the excess time needed to complete the paper work not to mention the extra funds required to execute the type of detailed statistics the lenders wanted for EFT backed loans. As far as the banks themselves go, they say that they are lending to more small companies and lending more money, as well, but that the demand has simply fallen off over the course of the last year.

The EFT backing scheme is designed to support loans between £1,000 and £1 million for companies that have a smaller yearly cash flow than £25 million. To date, over £1 billion such leans have been backed by the Government since the EFT was first put together and another £200 million has been added since the June Budget which was put together as part of an emergency plan to help the UK economy.

Economists are glad for these figures which were brought to light due to the efforts of a new UK bank called Aldermore which put in a freedom of information request to learn the statistics. The issues for most economic observers are that small companies often provide steady employment for an ever growing number of Britons and that when these companies cannot grow, the job market can shrink then affecting much of the economy.