enterprise guarantee scheme
Scepticism
and confusion over
finance guarantee scheme
The Enterprise Finance Guarantee scheme launched by measures of support to them conditional on their providing
the Government in November 2008 claims to be meeting more lending to business and homebuyers, and we will
the needs of the audience for which it was intended. But the continue to do this. What we want to ensure is that viable
fact that the banks first have to satisfy themselves that a businesses, with sound business plans, are not being un-
business and its proposition are both valid is likely to mean necessarily punished due to the banks’ new-found high
that they will be more inclined to lend to companies with levels of risk aversion.”
an established track record, which they would not wish to
lose to a competitor.
BERR’s Head of Enterprise Directorate was keen to set
£1.3 billion lending target in sight?
government strategy on finance for smaller businesses in The Enterprise Finance Guarantee scheme which is now
the context of the global financial crisis, and the effect it central to the Government’s banking strategy is open to
has had right across the economy. “The banking crisis came businesses with an annual turnover of up to £25m seeking
about through banks taking too much risk, including involve- loans from £1,000 through to £1 million. BERR claims to
ment in sub prime markets. Last autumn, the pendulum be on track to guarantee an additional £1.3bn of lending to
swung in the opposite direction, and the banks became risk SMEs over the year.
averse. At the same time the same institutions had a short- The scheme did not get off, however, to a smooth start.
age of capital. So they could not and would not lend.” While the policy decision was communicated by BERR to
Since the autumn, our priorities have been to stabilise the banking groups, accurate information on how it would
the banking system. The measures we have taken have operate in practice took a long time to filter down to the
started to address this: the recapitalisation of a number of customer-facing staff in the branches who would be field-
banks has stimulated lending again, while the Enterprise ing enquiries.
Finance Guarantee and other measures have addressed their There was considerable confusion, for example, over
aversion to marginal risk. As a result, we are now seeing whether a bank involved in the scheme could ask a client
higher levels of lending by the main UK banks. for security in respect of any loans to be offered. Since the
objective of the scheme was to help businesses which
Ownership but not operational control
would not be able to provide that level of comfort, bankers
making such demands had clearly not understood the point
In an environment where formal ownership and operational of the exercise.
control of the banks is still a step removed from government Asking for personal guarantees is not out of the question,
policy, it is interesting to have BERR’s perspective on de- however: the banks have taken the view that the risk should
velopments there. Adam Jackson again: “The way we have fairly be spread between themselves, the Government and
incentivised the banks has been to make all Government the borrower. §
70
The Informed Executive
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