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EFG has £600 million to lend, so why isn’t it lending?

EFG has £600 million to lend, so why isn’t it lending?

Syscap, the independent finance provider, has said that lending under the Enterprise Finance Guarantee scheme fell by 42% over a 12 month period.

In the year ending June 2011, only £433 million was lent under the EFG scheme, compared to £742 million in the year to June 2010. Between April and June this year, just £93.1 million was offered to SMEs and accountants for contractors under the scheme. In the comparable quarter of 2009, £254.9 million worth of loans were offered.

The government has allocated £600 million for additional lending in the year ending 31 March 2012 but if the current trend continues, it is unlikely to reach that target.

One problem appears to be that the EFG scheme does not fund SMEs through lease financing. Leasing is crucial to many small businesses as it allows them to maintain a healthy cash flow, spread the cost of assets and is tax deductible. However, the EFG does allow invoice financing, which is a form of asset finance.

Philip White, Syscap’s chief executive, said the EFG scheme urgently needs to increase lending if we are going to get the economy back on track and create jobs. But it looks highly unlikely that the scheme will lend all of the £600 million it has available if the first quarter lending figures are anything to go by.

Meanwhile, the FSB has welcomed the Independent Commission on Banking’s recommendations for the reform of the sector and is now calling on the government to implement the recommendations before the end of this Parliament.

The ICB has proposed that retail banking operations are ring fenced from the more risky investment banking activities. 89% of FSB members think that the UK banking system needs to be reformed. 52% believe it should happen immediately, whilst 45% say reform should take place by the end of this Parliament.

John Walker, the national chairman of the FSB, said the ICB’s recommendations could make the banking sector more secure but the government must resist the temptation to water them down.

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Image: No Water in them Fountains During Winter by findingtheobvious

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