Enterprise finance
guarantee scheme to extend lending to businesses and social enterprises
DEPARTMENT FOR
BUSINESS, ENTERPRISE AND REGULATORY REFORM News Release (2009-156)
issued by COI News Distribution Service on 12 May 2009
Business Secretary
Lord Mandelson today announced changes to the Government's
Enterprise Finance Guarantee Scheme to help improve lending to
businesses and social enterprises in disadvantaged areas. The
announcement came as he jointly chaired a social enterprise summit
with Liam Byrne.
The changes will provide extra support to Community Development
Finance Institutions by allowing them to access bank loans, worth
up to £20m, through the EFG scheme. Unity Trust Bank, in response
to this change, also announced today that it is making an
additional £5m available for onward lending by CDFIs.
Community Development Finance Institutions, provide vital
financial support to businesses and social enterprises which are
unable to access bank lending due to the higher risk associated
with supporting the disadvantaged groups and communities to which
they lend.
Secretary of State for Business Lord Mandelson said:
"Community Development Finance Institutions play an
extremely important role supporting small businesses and social
enterprises in disadvantaged areas.
"In the current economic climate, these institutions are an
increasingly important source of finance and investment for small
businesses and social enterprises that have been unable to access
finance from banks. These changes to the Enterprise Finance
Guarantee Scheme will enable more of these institutions to raise
additional lending worth up to £20m."
Minister for the Cabinet Office Liam Byrne said:
"Social enterprises, businesses that make a difference as
well as a profit, can help Britain emerge from this recession stronger.
"I warmly welcome Lord Mandelson's announcement today
as a step that will help social enterprises flourish. Already over
60,000 social enterprises with a combined turnover of around £27bn
are finding innovative solutions to the toughest social and
environmental problems.
"The Government is today holding a summit with social
enterprise leaders to reaffirm social enterprise at the heart of
government thinking."
The Enterprise Finance Guarantee Scheme currently has more than
£344m of eligible applications from 3,071 firms that have been
granted, are being processed or assessed. And 2059 firms have now
been offered loans totalling over £186m.
To help social enterprises make the most of the new investment
that will be available the Cabinet Office, in partnership with the
National Endowments for Science, Technology and the Arts (NESTA),
today announced a year long Access to Investment Programme. This
programme will aim to find ways for social enterprises to gain the
advice and support they need to access new forms of growth finance.
Notes to Editors
The Enterprise Finance Guarantee is a £1bn loan guarantee scheme
delivered through the banks that will enable an additional £1.3bn
of lending to businesses up to end March 2010. EFG provides a 75%
government guarantee on individual loans to viable businesses with
less than £25m turnover. It can be used to support new loans,
refinance existing loans where the loan is at risk due to the
deteriorating value of security or to convert part or all of an
existing overdraft into a loan to release capacity to meet working
capital requirements. EFG is open to businesses with an annual
turnover of up to £25m seeking loans of £1,000 through to
£1million, repayable over a period of up to 10 years.
The changes BERR has made today allow for an EFG guarantee on
capital lent to the CDFI by accredited lenders. This would
effectively provide a guarantee at the level of the CDFI's
lending to SMEs. By providing this greater level of security to
the banks that their capital loan to CDFIs can be repaid we expect
to encourage up to £20million of additional loans to the CDFI sector.
Community Development Finance Institutions (CDFIs) are
independent financial institutions that provide loans to
businesses, individuals and social enterprises in disadvantaged
areas and who are unable to raise finance from mainstream lenders.
There are between 70 - 80 in the UK the majority are Industrial
and Provident Societies or Companies Limited by Guarantee. The
CDFIs' Trade association (the CDFA) publishes Inside Out,
every two years. The most recent available data on CDFI activity
(covering up to 2007) was published in March 2008. It reports
that the sector had onward invested £287m, created and sustained
33,000 jobs and levered an extra £330m of finance into the
businesses and households it serves.
Government has launched a range of Real Help for Business in the
current situation. I attach All measures offering real help for
small business can be accessed via the Business Link portal:
* The http://www.businesslink.gov.uk/realhelp
portal
* Their local Business Link adviser on 0845 600 9
006
* Information on finance schemes and an initial assessment
of eligibility is available at http://www.businesslink.gov.uk/realhelp/finance
Social Enterprise Access to Investment programme
This Social
Enterprise Access to Investment programme will be run by the
National Endowment for Science, Technology and the Arts (NESTA)
and is jointly funded by the Office of the Third Sector in the
Cabinet Office.
The programme will run for one year to provide
insight into how Investment Readiness Providers (IRPs) that
provide advice and brokerage for social enterprises may be
sustainably financed in the future. This aims to increase the
quality of social enterprise investment proposals; their chances
of success; and the appeal of social enterprises as investment vehicles.
While, Social Enterprises can benefit from a wide range of
financial products they are not always able to access the finance
appropriate for them. Evidence suggests that this might be due to
the fact that many SEs are not always investment ready and can
have low levels of financial literacy. This translates into higher
transaction costs for investment in these organisations.
According to research undertaken, there is a lack of appropriate
financial advice for social enterprises and existing advice is
often targeted at mainstream businesses.
One of the key features of the programme is a success fee that
will incentivise 'brokers' of advice to help social
enterprises access funds. These fees will be performance based and
only payable to investment readiness providers in the event of
social enterprises successfully accessing risk capital. The aim is
to adopt the model of success fees proven in other markets in the
developing capital market for businesses driven by more than just
the financial bottom line.