Enterprise Finance Guarantees Loans
The Enterprise Finance Guarantee (EFG) is an incentive designed by the UK government to help businesses apply for a commercial loan if they have been turned down due to a lack of security or collateral. There are 47 lenders involved in the scheme, including popular banks such as Barclays, Lloyds TSB and HSBC, where the EFG scheme can be used as long as the business fits the application criteria. Ultimately, the decision to approve the loan application still lies with the lender. However, EFG loans are less of a risk because the government guarantees to cover the loan in the case of default partially.
What Are Enterprise Finance Guarantees Loans?
The Enterprise Finance Guarantee is similar to an ordinary loan, whereby a business applies for a certain sum of money they will pay back, with interest, in the next few years. There is also a 2% premium charge that helps cover the potential risk of default. The difference between an EFG loan and an ordinary loan is that there are specific criteria that a business must pass to be eligible to apply. Also, the government states that they will guarantee to pay off 75% of the loan value should the business be unable to repay it to the lender.
In an ideal situation, a business would promptly pay its loan back in monthly instalments. Still, lenders pose a risk because the EFG is designed for businesses with a less than credible history. Subsequently, suppose the company defaults and the commercial recovery procedure fails. In that case, the government will repay the majority of the loan to the lender, giving businesses a chance to be approved despite their inadequacies.
What are the Eligibility Criteria?
There are specific criteria that a business must pass to qualify for an EFG loan.
Firstly, the government states that the business must operate within the United Kingdom and in an approved sector. Most industries can qualify, except agriculture, transport, fishery, and formal education export abroad. If your business is involved with one of these sectors or plans to use the loan for international funding, your application will be rejected, or the loan will have a lower threshold.
From a financial aspect, businesses must have a turnover of under £41 million per annum, as the EFG incentive is designed for small to medium-sized businesses. The loan can be between £1,000 and £1.2 million, depending on the amount of financial assistance each company decides that they need. This funding can be used only for business-related activities. Additionally, the loan must be repaid in full based on the conditions agreed with the lender, which are from 3 months to 10 years for most loans, but three months to 3 years for invoice finance.
Types Of Loans Available
The EFG covers numerous facilities.
Most commonly, term loans are unsecured monetary loans lent by banks as a lump sum, which must then be repaid in the agreed time with interest. There are certain conditions regarding the contract, meaning that the business must use the funding for the agreed purposes. Refinancing of existing loans is also available so that if a company is having difficulty repaying a loan, the interest rate or length of the contract can be adapted. Another way to use the EFG is by converting commercial overdraft into a term loan, which saves money.
All of the above facilities can be repaid between 3 months and ten years; however, overdraft guarantee and invoice financing must be repaid within 2 and 3 years.
The Lending Process
The application process to secure an EFG loan begins like any other procedure, whereby you complete a form for the lender to assess. This form will include your financial history and projections, the purpose for requiring a loan, and any loan history in the previous years. Suppose the lender approves this application, but you do not have adequate security for a standard commercial loan.
In that case, your business consequently undergoes EFG criteria assessment, which, once approved, means that the process was successful.
It is worth noting that even if your business meets the EFG criteria, lenders have complete discretion over whether they approve your loan application.
Enterprise Finance Guarantees Loans – To Conclude
In conclusion, an Enterprise Finance Guarantee loan is the ideal funding solution for businesses that do not have adequate security or a good record of being granted a commercial loan. This initiative gives new businesses a chance to succeed, providing that they meet the eligibility criteria and have approved funding from one of the EFG approved lenders.
Funding options discuss obtaining business loans with bad credit in more detail here.
Other useful links about loans:
Understanding Small Business Loans
What is a Personal Guarantee?
Manufacturing Business Loans
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