Syscap: Government loan scheme is failing SMBs

According to leasing specialist, the amount of lending to smaller UK firms has dropped 42 per cent

Lending to SMBs under a government-backed finance scheme has dropped by 42 per cent, according to market watchers.

Leasing specialist Syscap claims the value of lending through the Enterprise Finance Guarantee (EFG) scheme fell to £433m in the 12 months to the end of June 2011, down from £742m during the previous 12-month period.

Syscap claimed that in the most recent quarter, between April and June 2011, just £93.1m worth of loans were offered to small businesses under EFG. This is down from a peak of £254.9m in the same quarter of 2009.

If this downward trend continues, the government is unlikely to reach the £600m allocated for additional lending under the scheme between 1 April 2011 and 31 March 2012, claimed Syscap.

Philip White, chief executive of Syscap, said: "With economic performance in the last two quarters looking lacklustre and the ongoing eurozone crisis continuing to erode business confidence, an expansion of lending under the EFG scheme is urgently needed to help put the economy and job creation firmly back on the growth track."

"But with the value of EFG loans offered during the first quarter of this financial year so low, it's looking highly unlikely that the scheme will make much of an inroad into the £600 million that has been put aside for it."

White claimed that the government is not considering leasing as an option, which is also having a negative effect: "One reason for this may be that the scheme still excludes leasing, which is a crucial source of financing for SMEs for many reasons - not least because it is used by businesses to acquire new IT and machinery. It is exactly the kind of capital investment that we need to start a sustainable recovery."