Enterprise Finance Guarantee

The Enterprise Finance Guarantee (EFG) is the UK government’s loan guarantee scheme for small businesses that have been denied finance facilities from the private lending market due to a lack of security or proven track record required to meet normal lending security thresholds. EFG provides the lender with a government-backed guarantee up to a maximum of 75% of the loan, with an eye to enabling the lender to say ‘yes’ as opposed to rejecting the loan application.

Only when the lender is satisfied that your business is viable and can meet the agreed term loan repayment schedule, will the EFG loan be considered, this will be assessed by the lender at the time of the loan application. All lending decisions and the delivery of enterprise finance guarantee loans will be in the hands of the lender, who will decide if an EFG is suitable and whether eligibility criteria have been met.

What business finance products does EFG support?

EFG supports businesses by protecting lenders across a range of different lending products. The following types of funding options are supported by EFG:

• Asset finance

• Invoice finance

• Working capital loans

• Revolving credit facilities (overdrafts)

What are the eligibility criteria for an EFG?

EFG guarantee business loans are aimed at small to medium-sized UK-based businesses that have a turnover of less than £41 million per annum. To be eligible for the scheme, you will first need to approach a suitable lender and if you operate within an eligible industrial sector (only a small number of sectors are not eligible) and have a comprehensive borrowing proposal but lack the required security to get a loan under normal lending requirements, you might have some joy with an EFG.

EFG guarantees loans to support the future growth of your business from £1,000 up to a maximum of £1.2 million. Typical finance terms range from three months to 10 years (terms loans and asset finance) and three years for revolving credit facilities and invoice finance.

Further eligibility requirements worth noting include:

• The company must not be in financial distress

• The business has to be viable (according to the lender’s normal commercial practice) 

• Must not have exhausted state aid limits

• Facilities of £600,000 or higher are restricted to a maximum loan term of five years

• Terms and pricing are commercial matters for each lender but in all cases, the borrower pays a 2% fee to the government via the Secretary of State for Business Energy and Industrial Strategy (formerly the Department for Business, Innovation & Skills) as a contribution towards the cost of providing the guarantee

• The EFG guarantee is to the lender, not the borrower. For asset finance, the EFG guarantee can be applied to the entire asset finance transaction or in part

• Decision-making on borrower eligibility is up to the lender and not the British Business Bank

Note: A limited number of further eligibility restrictions apply. Full details can be found here

How do I apply for EFG borrowing?

Applying for an EFG loan is straightforward and won’t take much longer than a typical loan application. Any small business that needs a loan but lacks the required security for an off-the-shelf lending facility should apply. Funding Options can help you select any one of the  40+ EFG-accredited lenders. If the EFG lender can offer you funding under normal lending terms, it will do so, however, in the case where a business owner has a legitimate borrowing proposal, but simply lacks security, the EFG can come into play, to protect the lender and support SMEs. EFG-eligible lenders include high-street banks, asset-based lenders, specialist local lenders, and challenger banks.

It’s worth emphasising some other points of note.

• As with any other commercial transaction, the borrower is responsible for the full value of the repayments of any facility supported by EFG

• The EFG guarantee is to the lender and not the small business

• This 2% government fee is payable on a quarterly basis and is collected by direct debit, directly from the small business’s bank account

Types of lending available under EFG

There are a number of options open to business owners looking to get funding with the help of EFG. The following lending products are covered and carry different repayment terms from 3 months up to 10 years.

New term loans

Loans are available as unsecured or partially secured, usable for working capital or for investment purposes, this includes R&D.

Refinancing a current loan

In the case of an ‘at risk’ loan where the security is losing value, or if cash flow issues could become an obstacle for future loan repayments, you can apply to refinance your existing loan through EFG.

Overdraft conversion

Business owners also have the option to convert part, or all, of an overdraft balance into a term loan to free up cash for working capital.

Invoice finance 

EFG supports additional advances on debtor books, so that borrowers can access cash on existing commercial terms for up to 3 years — providing instant funding for unpaid invoices.

Overdraft guarantee

Business owners can use the guarantee for new or increased limit overdraft borrowing, if the business is viable, but does not meet typical collateral requirements. This option is open for a term of up to 2 years. Lenders are under no obligation to offer the full suite of lending products.

Caveats

Please note that a survey by the Department for Business, Energy and Industrial Strategy found that one in seven EFG borrowers believed that their bank did not make it clear that it was the borrower who was liable for the entire value of the loan and that EFG will not protect their personal assets in the case of insolvency. EFG loans carry more risk than other funding options with a default rate, according to government statistics of 28% in the first three years, compared to the 4% average for SME loans.

Alternative government business loans schemes