Two government schemes have been launched to help businesses find capital for start-up, growth or innovation. The enterprise finance guarantee (EFG) scheme provides working capital, and the capital for enterprise fund (CEF) provides longer-term equity funding.
The EFG Scheme effectively extends the small firms loan scheme by guaranteeing loans of between £1,000 and £1 million. Although designed for working capital, the loan can be for up to ten years. Businesses in most sectors will be eligible for the scheme, but it is very significant that the Business Secretary, Lord Mandelson, said that bank lending would be targeted at “innovative, viable and growing” businesses.
The scheme lets businesses borrow from a number of approved lenders, including the major UK banks, and the government will guarantee seventy-five per cent of the loan. The scheme, which is open to businesses with turnover up to £25 million, opens up funding to far more companies than the small firms loan scheme.
The guarantee can be used not only to support new loans and refinance existing loans, but also to convert part or all of an existing overdraft into a loan to release capacity for working capital.
Malcolm Lucas, technology specialist at Menzies, said: “With continuing uncertainty in the banking sector, there will be considerable demand for the EFG Scheme. So it may be a question of getting in while you can.”
The capital for enterprise fund (CEF) has been established to provide equity finance for small and medium-sized entities. It is a £75 million fund designed to fill the equity gap, and comprises £50 million of government money and £25 million from the major banks. Targeting investments of up to £2 million that have the potential to provide a good commercial return, the fund provides longer-term capital to companies that have exhausted their traditional borrowing capacity.
The CEF is open to companies that are economically viable over the long term. It will enable them to raise new long-term capital using equity finance to restructure their balance sheets and continue their innovation and growth.