Memorandum submitted by the Royal Bank
of Scotland Group
EXECUTIVE SUMMARY
The Royal Bank of Scotland Group, which
includes NatWest and Ulster Bank is the largest supporter of the
Enterprise Finance Guarantee (EFG) Scheme. We currently have £149
million of EFG loans already agreed or in the pipeline.
We are committed to ensuring that like its predecessor, the Small
Firms Loan Guarantee Scheme, the EFG is widely accessible to our
Small & Medium sized business customers (SMEs) and that our
Relationship Managers are able to identify opportunities where
EFG can improve the availability of working capital or support
lending for business growth. So far, the Royal Bank of
Scotland Group has advanced almost £69 million (48% of all
EFG loans drawn.
The purpose of this submission is to
inform the Committee about the role that RBS has played in supporting
businesses through delivery of the EFG and our progress to date.
THE ORIGINS
OF THE
SCHEME
1. The Enterprise Finance Guarantee was
introduced in January 2009 and replaced the previous Small Firms
Loan Guarantee scheme (SFLGS). The Royal Bank of Scotland Group
had been the most significant user of the SFLGS with a market
share of c 38% (across both RBS and NatWest brands).
2. The Enterprise Finance Guarantee is a facility
for SMEs intended primarily to improve the availability of working
capital through term loans and the consolidation of overdrafts
while also supporting lending for business growth and development
in cases where a sound proposition may otherwise be declined due
to a lack of security.
3. Initial discussions on the design of
the EFG were held in early December 2008 and detailed scheme parameters
were provided to lenders in mid-December. The EFG was formally
launched on 14 January 2009 and implementation was achieved in
challenging timescales. From start to finish, the speed of the
EFG launch was significantly quicker than would usually be the
case for a new product.
4. There was pressure from SMEs, Government
and business organisations to launch the EFG scheme as soon as
possible. One of the biggest challenges this created was ensuring
our staff were familiar with the scheme. RBS put in place a comprehensive
education and communication exercise to ensure staff at the frontline
understood the EFG and could recommend it to customers where appropriate.
The first loan approved under the EFG was sanctioned less than
a week after the formal launch of the scheme.
THE SCOPE
OF THE
SCHEME
5. At launch, EFG broadly mirrored SFLGS
in terms of general eligibility, although an increased maximum
loan amount of £1 million and maximum business turnover of
£25 million was introduced, an increase from the the thresholds
which were applicable to SFLG of £250,000 and £5.6 million
respectively. The Government provides a 75% guarantee for qualifying
loans which allows lenders to provide finance to eligible and
viable businesses. At launch, the scheme was restricted to term
lending, so that the scheme could be carried forward quickly.
This scheme does not replace lending that would have been granted
anywayexcept where a consolidation of existing overdraft
debt is restructured into an EFG Loan. When this happens we are
required to extend a working capital line (by overdraft) at a
value deemed appropriate by the bank.
6. Sector eligibility was widened by the Government
with effect from 1 March 2009, with many of the business activities
restricted by SFLGS being eligible for EFG finance, thereby increasing
the scope for use of EFG across a wider range of SMEs (eg wider
eligibility within Healthcare). RBS welcomed the widening of EFG
eligibility, in particular the simplification of sectoral eligibility
and this has enabled us to support more businesses. Notification
of this was given to lenders on 23 February.
7. The funding available to RBS under the
EFG is broadly in line with our market share of SFLGS, however
it is higher than our overall share of the small business market
(sub £1 million turnover business) which was 26% in Q4 2008
(source: TNS). Although the Government provides a 75% guarantee,
claims are capped at 9.75% (net on a portfolio basis and not advised
to Relationship Managers). This is a state aid consideration and
has not restricted lending under the EFG. Overall, at current
run rates, we expect to utilise our £380 million allocation,
a view confirmed by BERR through the recent audit undertaken by
Ernst & Young.
8. We are satisfied that the EFG parameters
cover the majority of our business customers who are in need of
the guarantee scheme. This is evidenced by the small number of
requests for support at the upper end of these limits. Furthermore,
we have not received any feedback that the upper ceiling of support
is too low. Our average loan amount £118k is above the national
average of £85k. We have also provided four loans at the
scheme maximum amount of £1 million.
THE APPLICATION
PROCESS
9. The typical application process for an
EFG loan is as follows:
The local Relationship Manager discusses
finance needs with customer outlining all available options including
a possible EFG loan.
The Relationship Manager makes an application
to the credit unit to confirm a viable business proposition exists.
Credit unit confirms eligibility and
sanctions the EFG loan.
The Relationship Manager then offers
the loan to the customer.
The final stage is where the customer,
having met any required conditions of sanction, draws the loan.
10. We are aware of the criticism of the
industry regarding an apparent disconnect between "head office"
pronouncements and front line experience of the time taken to
draw down an EFG loan. Currently 83% of all RBS EFG loans are
drawn within three weeks of the initial record being made of the
loan. Once sanctioned, however it is possible to significantly
expedite this time line should the borrower make themselves available
to sign appropriate paperwork.
11. An EFG loan will typically draw quicker
than a non-EFG loan of a comparable amount, as there will generally
be fewer pre-drawdown security conditions to meet (ie no solicitor's
involvement to take a legal charge). However, we have recently
undertaken an internal review of our own end to end EFG process
to identify where time savings can be made.
Table 1
TIMEFRAME TO DRAW DOWN EFG LOANS (%)

RBS PERFORMANCE (INCLUDING
SECTOR AND
REGIONAL BREAKDOWN)
12. Since the launch of the scheme, the
Royal Bank of Scotland Group has led the field in taking applications
for the Enterprise Finance Guarantee scheme with over £149
million worth of loans already agreed or in the pipeline. Of all
EFG lending across the industry NatWest and RBS are responsible
for almost half of all loans drawn down totalling almost £69
million.
13. We have seen a significant take up of EFG
across the country. We have seen particular demand for the EFG
in Scotland, the Midlands, North West, South East and London.
In the Midlands, we have seen a significant number of EFG loans
supporting the manufacturing sector. Scotland has seen significant
demand in the healthcare sector. RBS Group has seen consistent
growth in the rate of application since the scheme was launched.
INTERNAL COMMUNICATIONS
14. RBS has undertaken a programme of communication
with frontline staff to ensure they understand and can provide
details of the EFG to business customers. In particular there
have been:
Regular written and oral communications
to frontline staff to increase knowledge and awareness of the
EFG.
All staff briefings held in branch with Business
Relationship Managers (all retail branch staff have been asked
to confirm they have had and understood the EFG briefing and all
Retail Branch Managers have confirmed they have delivered the
EFG message to staff).
Business Relationship Managers have been
tasked with raising EFG awareness in branches they cover.
EFG case studies and policy update information
sent to frontline staff.
Regular reviews with Business Relationship
Managers to help embed best practice and ensure consistency.
Senior Directors coaching Business Relationship
Managers to verify their understanding of the EFG.
Detailed information on the EFG posted
on internal group intranet.
EFG marketing literature for customers
available in all branches.
15. To determine the extent to which the
four major banks were providing businesses with appropriate information
about EFG, BERR commissioned a mystery shopping exercise, including
both telephone and face-to-face interviews, during 2-13 March.
This exercise highlighted that 95% of NatWest/RBS Business advisors
had a good or adequate knowledge of the scheme. This is significantly
higher than our peer average of 73%. However, the same research
showed some weaknesses in understanding of the EFG among some
branch staff.
16. To ensure our customers were receiving
high levels of service, RBS commissioned our own mystery shopping
exercise to check understanding and processes used by retail branch
staff (Customer Service Officers and Cashiers) in handling EFG
enquiries. This identified that further work needed to be done
with retail "receptionist" staff for which a detailed
action plan was agreed and implemented. A further mystery shop
conducted as a follow up exercise demonstrated significant improvement.
In the second phase of our mystery shop, we found that there was
a significant improvement in the recognition of the scheme in
the response of retail staff to queries on the EFG. We will continue
to carry out our own mystery shop exercises at regular intervals
to ensure we continue to improve awareness even further.
EXTERNAL COMMUNICATION
17. RBS have taken a very proactive approach
to promoting the EFG scheme to new and existing customers in a
variety of ways:
The EFG was advertised prominently as
part of our £3 billion Regional Funds initiative in which
we have launched 12, £250 million local funds across England,
Wales, Scotland and Northern Ireland (through Ulster Bank). Adverts
which featured the EFG appeared in three to four local newspapers
for each of the 12 regions. The advertisements appeared four to
five times in each of these publications over the period of the
campaign. We also advertised on billboards in our key locations.
At a national level there was also online paid advertising.
As part of the regional funds initiative
RBS produced a practical guide entitled Helping your Business
in 2009. This guide details the existing products and services
from the Bank and the support that is available through EFG. During
February we also mailed out 150,000 copies of the Helping Your
Business in 2009 guide to small and medium sized businesses.
We are also making copies available to the British Chambers of
Commerce for use by their members.
We briefed key opinion formers in the
national and regional media on the workings of the scheme, and
success in making new lending available to SMEs. We helped to
raise awareness of the scheme by profiling customers who have
benefited from EFG lending on a regular basis in national and
regional media.
We produced a video podcast on the workings
of the scheme and how to apply on SME networking site Smarta.com.
We have produced customer literature
explaining the key features and benefits of EFG. These were distributed
to branches and business centres during April.
We are currently undertaking a two month
in branch lending campaign where EFG and the EIB Loan Scheme for
SME's are extensively publicised.
CURRENT ISSUES
18. There has been some public debate on
the subject of Personal Guarantees. At RBS we have been very clear
that Personal Guarantees will be taken from shareholders/LLP members
who own a significant proportion of an applicant's share capital.
Such guarantees will generally be for 25% of the loan amount,
although this figure may be amended, subject to Credit agreement,
depending on the risk profile of the borrower. Credit Policy is
also clear in that we will not support Personal Guarantees by
a charge over a guarantor's principal residence.
19. To improve the service to our customers and
shorten the time taken to access scheme funding we have undertaken
a review of our EFG operational processes. A number of actions
have been identified which will require the support of Capital
for Enterprise Ltd to deliver including simplifying the customer
application form and exploring ways to use electronic delivery
of scheme documentation. We are already working together with
Capital for Enterprise Ltd to deliver these improvements and support
them in their own review of EFG processes.
May 2009
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