Memorandum submitted by Lloyds Banking
Group
EXECUTIVE SUMMARY
— Lloyds Banking Group provides one
in four of loans under the Enterprise Finance Guarantee.— Lending
to small businesses (up to £1 million turnover) has grown
by twice the industry average in the past year.— We
have committed to £11 billion of additional lending to creditworthy
businesses in 2009 and a similar sum in 2010.
1. INTRODUCTION
1.1 The Lloyds Banking Group (LBG) was formed
by the merger between Lloyds TSB and HBOS on the 19 January 2009.
Lloyds Banking Group Commercial provides banking services to small
and medium sized enterprises, with a turnover of up to £15
million, principally through Lloyds TSB Commercial in England
and Wales and Bank of Scotland Business Banking in Scotland. Lloyds
TSB Corporate provide banking services to larger businesses and
offer Enterprise Finance Guarantee (EFG) loans to businesses with
a turnover from £15 to £25 million.
1.2 The Lloyds Banking Group welcomes this opportunity
to provide evidence to the Business and Enterprise Committee's
inquiry into the EFG.
1.3 We welcome the actions taken by Government
to provide support to small business customers during the economic
downturn and we are actively participating in the full range of
initiatives. The EFG offers a significant opportunity to lenders
to provide finance to small businesses that they would otherwise
not have been able to support.
1.4 Through its Lloyds TSB Commercial and
Bank of Scotland brands, the Lloyds Banking Group is one of the
most active lenders under the EFG.
2. SCHEME ELIGIBILITY
2.1 The EFG was established to assist viable
small businesses access to credit where a bank would normally
want to lend but is unable to do so because the business has insufficient
security to support the lending facilities required.
2.2 A key requirement of the Scheme is that lenders
review requests for finance on a normal commercial basis. In doing
so, lenders consider whether security is needed to support a loan,
whether it is available and will offer facilities subject to the
provision of security. Where security is insufficient, lenders
will consider the may take security for the facility alongside
the State guarantee. In the case of a limited company or limited
liability partnership, lenders may consider personal guarantees
but will not take security over the guarantor's residential property
specifically in support of an EFG facility.
2.3 In the event of default on the loan,
the EFG absorbs losses (up to the maximum 75%) after all efforts
have been made to recover outstanding balances from other available
assets. In this way, risk is shared between the customer, bank
and Government.
2.4 Lending under EFG is subject to a cap
for losses that could be incurred, which is set by the Department
for Business Enterprise and Regulatory Reform (BERR) and the European
Commission reflecting an expectation that the credit decision
should be based on prudent credit criteria.
2.5 The vast majority of LBG lending to
SMEs is made on commercial terms and we approve approximately
80% of applications for finance. There is an additional premium
payable by businesses for lending under the EFG and by providing
finance to SMEs on normal commercial terms, the Bank can help
SMEs to avoid those fees and reduce the potential call on the
state in the case of default.
3. LLOYDS BANKING
GROUP PARTICIPATION
3.1 Lloyds Banking Group is one of the most
active lenders under the EFG accounting for a quarter of all loans
offered under the Scheme and has participated in the Scheme under
the LTSB Commercial brand since launch on 15 January and Bank
of Scotland is also now fully participating in the Scheme.
3.2 In order to ensure that our relationship
managers are aware of and understand EFG, we have provided detailed
internal communications to staff, including an intranet based
support guide, and have a specialist team in place to provide
efficient and speedy access to EFG for customers.
3.3 Existing and prospective customers can
obtain detailed information on EFG from our website: http://www.lloydstsbbusiness.com/finance/enterprisefinanceguarantee.asp.
We explain how existing and prospective customers can find out
whether their business is eligible and also provide a link to
the BERR website.
3.4 We are marketing our support to businesses
by encouraging demand in the following ways:
— Promoting Lloyds Banking Group Commercial
as very much open for business and continuing to lend.
— Providing balanced messages about
economic prospects, so that investment opportunities are considered
where appropriate.
3.5 We can provide finance within two weeks
of application and often in seven days and we understand this
to be one of the most efficient within the industry.
3.6 As at 13 May, over 2,500 loans had been
offered to customers across all banks, of which 640 were offered
by Lloyds Banking Group.
4. SUCCESS OF
THE SCHEME
4.1 EFG is working well and businesses are
already benefiting with nearly 1,600 loans already drawn down
in the four months since launch. This is support that would not
otherwise be available, in the absence of the Scheme.
4.2 What would help participation is a clearer
message on why EFG is available. The scheme is not there to provide
finance to businesses which, for whatever reason, are not viable.
The Scheme exists to bridge the gap where there is a viable business,
in need of finance, but does not have access to sufficient security
to support the credit request.
4.3 BERR evidence suggests use of the Scheme
is broadly reflective of the proportion of businesses trading
in each region.
5. OTHER GOVERNMENT
INITIATIVES
5.1 The Lloyds Banking Group is also participating
in other Government initiatives to support businesses.
5.2 Bank of Scotland has secured £250 million
in funding from the European Investment Bank (EIB) and Lloyds
TSB is in detailed negotiations to arrange agreement of its application
for funding.
5.3 The Group is also participating in the
Working Capital Scheme with a first tranche portfolio of £1.275
billion. The Scheme guarantees 50% of the risk on existing and
new working capital portfolios and will free up capital which
the banks will use for new lending.
5.4 Late payment of commercial trade debt
remains one of the biggest concerns for SMEs. In order to help
address this, Lloyds TSB has published guides from the Institute
of Credit Management on its website and Lloyds Banking Group are
also approved signatories to the Prompt Payment Code.
May 2009
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