Funding is finally starting to trickle through from banks to small firms under the government-backed Enterprise Finance Guarantee (EFG).

The £1.3 billion scheme was set up this year to provide funding to viable small firms that did not have any assets on which to secure a conventional loan and needed funding to tide them over the economic downturn.

However, the scheme, in which the government guarantees 75% of the loan, had a shaky start as small firms seeking funding discovered that their bank managers did not know anything about it, or they were confronted with confusing eligibility requirements.

According to the Department for Business, Enterprise and Regulatory Reform (BERR), 2,059 small firms have now been offered loans collectively worth £186m under the scheme. More than £344m of eligible applications received by the banks from 3,071 businesses have been assessed, are being processed or have been granted.

The BERR said: “EFG is on track, delivering real, targeted help to businesses across the UK.”

Among those who have benefited from the EFG are Jane and Rob Salvidge. They are the owners of the Bristol Ferry Boat company, which runs a commercial service and tourist trips in Bristol harbour, a business that has suffered from poor weather over the past two summers. Without any assets in the business they were unable to take out a conventional bank loan but have now been able to borrow £125,000 from Royal Bank of Scotland (RBS) through the EFG.

They plan to use the money to restructure the business and develop a café that also serves as a shop front for the business.

Jane Salvidge said: “Our problem was that we don’t have any building assets we could use to get a normal loan. Getting the money through the EFG has meant that we can invest in this café and so sell more trips and tickets.”

Malcolm Cole owns 13 Event jewellery stores across the country and has just secured an EFG loan of £200,000 from Barclays. He has opened two new stores in out-of-town shopping centres every year for the past six years and intends to use the money to open another two this year.

He said that because he had already written a detailed business plan forecasting the next 18 months it took only three to four weeks from applying for the loan to actually receiving the money.

“We rely on opening new shops every year and this has enabled us to maintain our progress,” he said. “There would have been no other way of raising that capital if it hadn’t been for the EFG.”

Tamlyn Thompson is another small-business owner who has managed to secure a loan under the EFG. He got £175,000 for his business ID Scan Biometrics, which designs biometric products used to check ID cards and passports, after submitting a 90-page business plan to his bank, Lloyds TSB. The loan will allow his firm to provide his customers with asset finance, which in turn will enable them to buy his products.

“We have had seven months of continued sales growth but a lot of our products are sold through asset finance to the leisure industry and we were looking at £150,000 of business that couldn’t go through because none of those customers was able to get finance because it wasn’t available. This loan will allow us to offer a form of asset finance to these companies so they can buy our products.”

Thompson was unable to apply for a conventional loan because he had already sold his home and put the money into the business.

There are now 26 lenders taking part in the EFG, of which 21 have already made some loans.

Steve Cooper, managing director of Barclays Local Business, said: “We think the EFG is an effective, good scheme that is playing a part in helping viable businesses in the downturn.”

Stephen Pegge, head of external affairs at Lloyds Banking Group said: “From the day of launch, Lloyds TSB has been using the EFG to support viable businesses with insufficient security and we have been recognised as one of the most active lenders under the scheme.”

However, many small firms remain deeply unhappy with the banks. The Sunday Times has received dozens of e-mails from small-business owners who have been turned down for funding under the scheme and do not understand why.

Small-business organisations warn that it will be some time before relations between small firms and the banks are restored.

Phil Orford, chief executive of the Forum of Private Business, said: “There is a degree of trust and expectation that has broken down. Small businesses are being bracketed together as high risk, regardless of their business plans and previous histories.”

Stephen Alambritis, spokesman for the Federation of Small Businesses, said: “We are beginning to see an improvement in the number of loans to small businesses from the banks and a reduction in the number of complaints from small businesses. The banks have got into the spirit of it and we estimate that the whole £1.3 billion will be lent by next March. But it is too late for the 120 businesses a day that have had to close and there is still a lot of resentment of the banks – even from entrepreneurs who have got the money they wanted – because of the high charges attached to the loans.”

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive