Memorandum submitted by the British Chambers
of Commerce
1. INTRODUCTION
1.1 The British Chambers of Commerce (BCC)
welcomes the chance to respond to the Business and Enterprise
Committee's request for evidence on the Enterprise Finance Guarantee
(EFG).
1.2 The BCC is the national voice of local
business; a national network of quality-accredited Chambers of
Commerce, uniquely positioned at the heart of every business community
in the UK. The BCC represents over 100,000 businesses of
all sizes across all sectors of the economy that together employ
over five million people.
2. EXECUTIVE
SUMMARY
2.1 The EFG is currently operating well
and providing support for businesses that have experienced difficulties
with the availability of credit. The most recent evidence indicates
that, after a slow start, take-up is increasing and the early
glitches within the system have been ironed out.
2.2 The implementation of the EFG has highlighted
potential problems that have occurred with service provision at
a local bank branch level. There should be an explanation of why
banks have had difficulties communicating the details of the scheme
down through their hierarchies to business advisers at a local
level.
2.3 There are several questions hanging
over the future of the EFG after its stated March 2010 completion
date. With the essential infrastructure of the scheme in place,
it should be possible to make any future changes to it relatively
efficient. However, as much data as possible on bank lending and
credit availability should be collected to inform decisions on
the EFG's future. On a general note, truly detailed statistics
on lending have been in short supply since the start of the downturn.
3. RESPONSES
3.1 The comments below under the Committee's
supplied headings have been developed through the BCC's members'
experiences of the EFG and knowledge acquired through contact
with the Department for Business, Enterprise and Regulatory Reform
(BERR) on the creation and operation of the scheme.
The threshold for an annual turnover of £25 million
for applicants
3.2 The latest statistics from BERR's Enterprise
Directorate Analytical Unit[2] suggest
that the turnover threshold would make the majority of businesses
that employ up to approximately 200 employees eligible (on
the basis of the turnover requirement alone).
3.3 During the BCC's contact with its network
on the scheme, it has never been suggested that the turnover threshold
is too low.
Whether the amount of money available is reasonable
to enable businesses to continue operating
3.4 If this question relates to the amount
available for an EFG backed loan (between £1,000 and
£1 million), it would seem so.
3.5 It is important to note that the BCC's
experience of those members who have taken out an EFG backed loan
has been that it will allow them to continue in business and,
to echo the response under the previous heading, none of our members
have reported that the amount that they are receiving is not enough.
3.6 If this question relates more broadly
to the £1.3 billion available for the scheme, as the
structure of the EFG with participating lenders is already in
place, it should be relatively straightforward to extend the amount
available (if required). This is more a topic for discussion when
BERR come to plan the direction of the EFG post March 2010.
Whether loan guarantees are the best method of
addressing the difficulties in businesses accessing finance, and,
if not, what is the best method?
3.7 It is difficult to see a better method,
not least given the speed at which a response to the credit crunch
was needed. The BCC argued before the 2008 Pre-Budget Report
that the Small Firms Loan Guarantee should be widened to assist
where access to finance difficulties were being experienced.
3.8 The take-up of the scheme so far is,
in itself, indication that it is successful and that it was necessary.
As far as the BCC is aware, no argument has been put forward to
suggest that a better system could have been introduced.
3.9 There is a debate to be had about the
system of loan guarantees in more stable economic conditions,
and that, again, is something that will be discussed as the future
of the EFG is planned.
To what extent the loan guarantee will encourage
new lending by banks
3.10 Part of the EFG's remit was to finance
new loans. It would be useful for BERR to publish any statistical
evidence that they have to show the proportion of new lending
under the EFG.
3.11 There is a more general point to make
about data on bank lending during the downturn, which is that
there seems to be a lack of statistical evidence surrounding the
issues that have arisen. If more figures on lending were available
at the outset of the reduction of credit availability it would
have certainly given more clarity to the problems that were affecting
access to finance.
The extent to which banks are making this scheme
available
3.12 During the EFG's infancy (for the first
month or so after its 14 January launch date), this was a
question posed by several of our members who had visited the local
branch of a participating bank to ask about the scheme, only to
be told that they weren't aware that it existed. It transpired
that this was not reluctance on the lender's part to utilise the
scheme, but banks seemingly having difficulty with their internal
communications down to a local branch level (this problem is described
in more detail under the next heading).
3.13 More generally, BERR statistics point
to the fact that the large banks share of lending under the EFG
broadly equates to their market share.
Whether businesses in some areas of the UK have
more difficulty in accessing the scheme than businesses in other
areas
3.14 A recent written answer to a parliamentary
question showed that the share of a region's EFG loans was broadly
similar to its share of registered businesses,[3]
with the exception of Northern Ireland.
3.15 There is another important point to
make under this heading, however, which is the quality of banks'
service provision at a local level, briefly alluded to above.
Quality of advice to businesses seeking finance at branch level
across a lending institution is seemingly inconsistent.
3.16 This is, in part, supported by BERR's
"mystery shopper" exercise, which found that three-quarters
of business advisers had "a detailed awareness and understanding
of the EFG's features and its role."[4]
While it is understandable that there is some element of inconsistency
throughout such large and far reaching organisations, what needs
to be explained is why banks have had difficulty communicating
the detail of the EFG down through their hierarchies, and why
one quarter of business advisers, over a month after the EFG's
implementation, didn't have a detailed awareness of a flagship
government lending scheme that was specifically designed to help
businesses.
Whether applying to the scheme creates an administrative
burden on those applying
3.17 There has been no indication from the
BCC's members that suggests that applying for the scheme was any
more onerous than applying for a standard credit facility.
Whether the scheme has been effectively promoted
to the private sector
3.18 As the scheme is intended to help the
business community in a severe economic downturn, the responsibility
to promote the EFG lies with the government as creators of the
scheme, banks as providers of the scheme and business representative
organisations, whose members are end users of the scheme.
3.19 If a business was seeking finance,
it would be difficult not to come across reference to the Enterprise
Finance Guarantee and its function. The Real Help for Business
campaign and support tool to establish eligibility also contributes
to awareness.
3.20 One further point would be that, despite
the EFG take-up and awareness steadily increasing, it did get
off to a slow start. This is likely to be due to a variety of
reasons, but the lesson that should be learnt for all schemes
that are introduced to combat the recession is that aggressive
promotion and awareness in the early days, twinned with efficient
implementation, should occur for maximum benefit to be wrought
from it.
Further comments
3.21 There were teething problems surrounding
the detail of the scheme, such as personal guarantees, and some
glitches were always going to be a possibility given that the
scheme was implemented from what was effectively a standing start.
These problems do seem to have been ironed out, however, and the
EFG appears to functioning well.
May 2009
2 BERR Enterprise Directorate Analytical Unit, Small
and Medium Sized Enterprise Statistics, http://stats.berr.gov.uk/ed/sme/ Back
3
Written answer, 20 May 2009: Column WA320,
http://www.publications.parliament.uk/pa/ld200809/ldhansrd/text/90520w0002.htm£09052047000537 Back
4
BERR Press Release, 24 March 2009, http://nds.coi.gov.uk/environment/fullDetail.asp?ReleaseID=396331&NewsAreaID=2&NavigatedFromDepartment=True Back
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