One of the biggest problems
facing us in a recession is how we can arrange the finance that we need. Outside of a recession we have few problems doing this and lenders are more than happy to let us borrow money. This isn’t always the case in a recession.
At this kind of time lenders are actually less likely to give out loans.
This can make it especially hard for businesses – it’s not just consumers who suffer here. When times get hard lenders will approve fewer loans and will impose stricter lending conditions. This is common business practice in a recession.
After all, the lenders here, like any other businesses, have to make sure that they stand the best chances of surviving the recession. For them this means cutting back on the loans they give out and asking for more guarantees before they do approve borrowing applications for businesses.
The problem for many businesses,
however, is the fact that this kind of behaviour doesn’t do them any favours. And, if they cannot raise the finance that they need then they could simply go under. Luckily, the government’s Enterprise Finance Guarantee scheme may be able to give them a viable alternative.
The Enterprise Finance Guarantee (EFG)
scheme has been established to help businesses to gain access to financial products in this tight market. This basically means that the government will back any loans given out within the parameters of the scheme to make it easier for the banks to give out loans in the first place.
So, if a bank lends money to a business with an EFG then the bank knows that the government will back the loan on behalf of the business that is applying for it. If, in the future, there is a problem with the business meeting its repayment commitments then the lender will be able to use the EFG to get their money back.
There are certain qualifying criteria and conditions imposed on this scheme. For example, your business cannot have a turnover of over £25 million. You must also be finding it hard to raise finance in any other way in the current economic climate. But, you must also be in a position where you wouldn’t have a problem raising finance in a non-recessionary economy. Apart from that there are few conditions imposed on your lending. So you can, for example:
The government does not approve your application here.
- Take out either a short-term or a long term loan (loans can be set up from 3 months to 10 years).
- Take out both small and larger loans (from £1,000 to £1 million).
- Use the EFG to get a new loan, to refinance an old one or to pay off an overdraft and turn it into a loan.
This will be left to the lenders that you approach for help. At this stage there are just over 20 lenders who operate under the EFG scheme with government approval. If you want to find out details of participating lenders you can find an up to date list on the BERR (Department of Business Enterprise and Regulatory Reform) website at www.berr.gov.uk
So, don’t assume that you won’t be able to raise the business finance that your business might need even if lenders won’t or can’t give you it under the current conditions imposed on us. All is not doom and gloom and the government is very aware that businesses need more help. This could be one way of making sure that your business gets it.