Memorandum submitted by British Bankers
Association
INTRODUCTION
1. BBA fully supports the Government's Enterprise
Finance Guarantee (EFG) loan scheme and 15 of its member banks,
who make up the vast majority of the SME banking market, are currently
registered under the scheme.
2. BBA publishes guides and advice on the EFG
and other forms of support for small businesses on its public
website, and also provides links to additional sources of information
on access to SME finance at http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=1538
3. Through its Small Firms Advisory Panel, BBA
provides a secretariat to representatives of all the major small
business lending banks to facilitate discussion on all aspects
for SME finance with SME trade associations; Government departments
and other key stakeholders. Additionally, BBA staff has spoken
at regional events throughout the UK to offer support and advice
to small businesses in accessing finance from SME lenders.
BBA MEMBERS' SUPPORT
FOR SMALL
BUSINESSES
4. Capital for Enterprise Ltd data show
that at the end of April 2009 and since its inception in January
2009 over £170 million of new loans had been offered to almost
2000 SME customers using the EFG.
5. BBA statistics show that during 2009 banks
lending to businesses with a turnover of under £1 million
per annum has totalled more than £2.5 billion, and our members
continue to start on average more than 45,000 new relationships
with SMEs per month.
6. Our members offer information about the
EFG scheme on their websites in addition to advice and guidance
on surviving the economic downturn. Banks also continue to hold
regional roadshows to provide practical advice to SMEs and those
who support them.
FEATURES OF
THE EFG LOAN
7. BBA believes that the threshold of £25
million annual turnover for access to the scheme is appropriate
to support those small businesses in most need to access to cashflow
finance in the current climate. We also believe that the amounts
and periods of repayment available are appropriate for these small
businesses.
8. Awareness of the EFG scheme now appears to
be growing among stakeholders but it was apparent that in the
first couple of months of the scheme its operation was open to
misinterpretation and confusion.
9. For instance, it was assumed by some
SME representative bodies that because EFG loans had a 75% Government
guarantee no circumstances should arise where the bank would seek
security from the applicant. This misconception did lead to criticism
of lenders in the scheme's infancy but subsequent clarification
from BERR has aided understanding.
10. Indeed, as BERR has pointed out, seeking
personal security from an applicant is appropriate to protect
the taxpayer and reflects standard banking practice where a business
may not have the assets necessary to support its borrowing.
11. A lack of awareness of the EFG scheme
amongst small businesses has also sometimes been apparent to our
members in their dealings with potential applicants. In some cases
small businesses have assumed that they are guaranteed to be provided
with a loan under the scheme whereas others have assumed that
banks should be offering lending via the EFG scheme without first
considering whether more conventional lending would be appropriate.
12. These and other similar issues have
been openly and constructively discussed at BERR's Small Business
Finance Forum and stakeholders have rejoined their efforts to
raise awareness and understanding of the scheme.
13. Finally, it should be noted that under
the terms of the scheme there is a cap on the guarantee that assumes
a 13% loss rate. This reinforces the need to ensure that lending
is made only to viable small businesses.
May 2009
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