SMALL businesses attempting to access the government’s £1.3 billion Enterprise Finance Guarantee (EFG) are being thwarted by high-street bank managers reluctant to provide the scheme.
In a survey of its members, the Federation of Small Businesses (FSB) found bank managers were putting unnecessary obstacles in the way of firms seeking help and that many high-street branch managers had no idea the scheme even existed.
The poll of more than 4,000 small businesses found that only 8% of them said their banks were making the EFG scheme available to them.
Stephen Alambritis, a spokesman for the FSB, said: “The banks are not releasing to small businesses the money that the government has put in place. They are not up to speed with the parameters of the schemes, and so businesses are going in and asking for money under the new schemes and they are being given preconditions that only existed under the old schemes.
“We are finding that banks are still being very harsh with small businesses.”
He said there needed to be a change of culture in local branches to make the scheme work, and that bank managers used to lending for expansion needed to adjust to lending to tide businesses over the recession.
“There is a disparity between the aspirations of entrepreneurs who are not in expansion mode but need some money to tide them over, and bank managers being very risk averse. There are huge problems.”
The EFG scheme was launched last month to help small businesses suffering from cashflow problems to access finance to tide them over in the present climate of tight lending conditions. The government is guaranteeing 75% of the value of the loans made, which can be for a maximum of £1m for up to 10 years and are available to small firms with a turnover of less than £25m.
The guarantee, which is being administered by high-street banks, will apply to loans and can also be used to convert existing overdrafts into loans to enable businesses to free up their overdraft facilities and meet working-capital demands.
The Forum of Private Business (FPB) said it had also been receiving calls from its members complaining about the difficulty of accessing the bail-out scheme.
FPB spokesman Phil McCabe said: “The government’s Enterprise Finance Guarantee was introduced to underwrite lending in order to reduce the banks’ perception of small businesses as ‘high risk’. However, even profitable members of the FPB are reporting that they are still being rejected for loans and overdrafts by some of the UK’s leading banks. The scheme is not working well.”
He said that in several cases members were reporting that their applications were being judged under criteria used by the now-defunct Small Firms Loan Guarantee scheme rather than those for the new scheme.
FPB member Stephen Harkin, who owns Saxon Oil near Coventry, a supplier of industrial and automotive lubricants, is one of those having difficulty in obtaining finance under the scheme. He had been hoping to borrow £40,000.
He said: “There is a huge knowledge gap about the Enterprise Finance Guarantee on a local level. When we approached Yorkshire Bank, all they could talk about was the old small-firms guarantee scheme.
“They appeared not to know anything about the Enterprise Finance Guarantee scheme. The only thing they wanted to do was lend me secured money, putting my home against any advance. We’re really frustrated by it.”
Peter Vale, who owns a furniture store near Llangollen in northeast Wales, is in the process of trying to borrow £25,000 through the scheme from HSBC.
He said: “Initially we found a lot of confusion. The banks just seem to be exceedingly cautious about it.
“Now it seems that we can go ahead if we can prove affordability, but it will have to go not only to my bank manager for approval, but to his boss and his boss’s boss because they are afraid of putting something forward that might come back to haunt them. I am no more than 50% optimistic at this stage.
“It is positive that the government is trying to do something, but I don’t think that the money will actually come out of the scheme because I don’t think the banks will be prepared to support it.
“They will go through the motions to be seen to be trying to support it, but the hoops small businesses will have to go through and the criteria that they will apply for affordability will make it beyond the reach of the vast majority of small businesses who need it.”
Malcolm Storey, the owner of C&M Framing, a picture-framing firm in Sunder-land, applied for a £50,000 loan from HSBC under the EFG scheme but was turned down on the ground that his credit rating was not high enough – even though he has been banking with HSBC for more than 15 years.
He said: “There doesn’t seem to be any point in schemes like this if they are not actually lending any money to people.
“I know of many firms who have been turned down for loans under the scheme and I only know of one that has managed to get any money. I think it’s terrible.”
William Flatau, who owns commercial-finance brokerage First Finance, said banks were unlikely to be fond of the EFG scheme because of its similarity to the old small-business loan-guarantee scheme.
“Many high-street lenders have made little secret of the fact that they loathed the small-firms scheme because of the high failure rate of businesses that used it and the huge amounts of red tape it involved,” he said. “Some bank managers viewed these loans as a scar on their lending book. I hope I’m wrong, but I can’t see how the banks are going to treat this scheme with any more delight than they did the old one.
“Coupled with this is the fact that there is obviously complete confusion as to how the new system works.”
Peter Ibbetson, head of business banking at NatWest and RBS, said: “We have made sure that all our business managers and front-line branch managers are fully aware of the scheme. We see this as an important scheme to help businesses that are suffering from cashflow problems and we are very keen that all our managers fully understand the scheme and are very focused on that.”
However, he acknowledged: “There is a need for continuing education in the high street. We are speaking daily to branches to make sure that everyone is aware that this is a scheme that we want to support.”
He added a warning that the guarantee scheme would not be open to all small businesses in difficulty.
He said: “It is important to emphasise that both we, the banks, and the government have to make sure that the cases that we are supporting can afford to repay. This scheme is there to support businesses that are having cashflow difficulties; it is not there to support businesses whose sales have collapsed completely and just aren’t viable.
“It is very important that businesses real-ise that this is a loan scheme and not grant money. We are seeing cases of some businesses believing that it is government free money – which it is not.”
A spokesman for the Department for Business, Enterprise and Regulatory Reform said: “We are in constant touch with the banks to make sure the scheme is going as it should. We expect there to be a significant increase in the number of loans being made over the next few months.”
Treasury minister Ian Pearson told MPs last week: “We are keen to hear of any instance where banks are unaware of the schemes. We will follow these reports up.
“All the banks have submitted loans and we are in communication with them all, so we are anxious to hear about examples where communication inside the banks does not seem to be working.”
