What are the banks and government doing to help firms access finance?

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Both the government and the banks have recognised the UK's SMEs are facing difficult credit conditions and have acted to improve finance.

There is a difference between them and between them and us as to how much of this difficulty is due to issues on the supply or the demand side and how much is reality and how much perception.

The government's schemes go back to the Enterprise Finance Guarantee, launched by Labour in January 2009 and designed to boost the availability of lending to SMEs who lacked sufficient security to secure loans.

The EFG works by government providing a guarantee on lending by banks (for a fee) to SMEs.

Insofar as it goes, the EFG has been successful albeit very small scale. The government has tried to extend its model to support exporting (the Export Enterprise Finance Guarantee) and now the range of eligible firms has been extended at the recent Autumn Statement.

The chief problems from our perspective with the EFG is that it is perceived as helping firms that have limited security – EFG-loans cannot be secured against personal property – but in reality in many cases it is part of a bundle that banks offer customers, where the non-EFG-backed loan is secured against personal property.

Also the EFG comes at a price and we know that the cost of credit is a key concern for SMEs.

Following the election the Coalition took some time to gather its thoughts on access to finance issuing a Green Paper seeking views from business organisations in July 2010.


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