Understanding the Enterprise Finance Guarantee

1. Overview

The Enterprise Finance Guarantee (EFG) is a guarantee scheme to facilitate lending to viable businesses that have been turned down for a loan or other form of debt finance due to inadequate security or a proven track record. In instances such as this, EFG may be able to turn that decline into an acceptance, but that is a decision for the lender and will only be considered if the lender is satisfied that your business is viable and can afford the loan repayments. The delivery of EFG, including all lending decisions, is fully delegated to the lender. They will decide whether EFG is appropriate and confirm whether your business is eligible, but businesses unsure about whether they meet the lender’s criteria for borrowing or have had a borrowing request declined are encouraged to ask their lender about EFG. EFG is managed by British Business Financial Services, a wholly-owned subsidiary of British Business Bank plc, but remains on the balance sheet of the Department for Business, Innovation and Skills. While the government provides a guarantee to the lender, they have no role in the decision making process and are not party to the loan agreement between the borrowing business and the lender. If EFG is not suitable then access the Finance Finder to see what other schemes might be applicable.

2. Eligibility Criteria

Eligibility for EFG-backed lending is devolved to and will be determined by the lender alongside their normal commercial lending appetite and practices. The following is therefore provided for guidance only. EFG is open to viable businesses that:

  • operate in the UK
  • have a turnover of no more than £41 million
  • are seeking finance of between £1,000 and £1.2 million
  • wish and can afford to repay over a period of between 3 months and 10 years for term lending and between 3 months and 3 years for overdrafts, invoice finance and other revolving facilities
  • require the finance for an eligible purpose (most business purposes are eligible – the most significant exclusion is the financing of specific export orders as alternative forms of assistance for that purpose are provided by UK Export Finance)
  • operate in a business sector that is eligible for EFG (almost all sectors are eligible – where exclusions apply they arise from EU State Aid rules)

A list of the main sectoral and purpose restrictions is provided here:

EFG Business Sectors and Purposes PDF, 35.6KB, 7 pages

The Industrial Development Act 1982 provides the legal basis for EFG. Please note that the British Business Bank cannot advise on individual eligibility queries. Please contact your lender for further advice.  

3. Types of facilities available

Facilities of the following types, repayable over a period of 3 months to 10 years unless otherwise stated, may be facilitated under EFG subject to the participating Lender offering facilities of the types concerned:

New term loans For working capital or investment purposes, including R&D, in cases where the proposition would otherwise be declined due to the absence or inadequacy of security.

Revolving facilities New or increased overdrafts, or other forms of revolving facility borrowing, where the SME is viable but has inadequate security to meet a lender’s normal requirements for the level of overdraft requested (available for terms of up to 3 years at a time).

Invoice finance facilities An additional advance on an SME’s debtor book, either in terms of the facility limit or advance percentage, to supplement an invoice finance facility on commercial terms already in place (available for terms up to 3 years at a time).

Term loan for debt consolidation or refinancing Provision of a new term loan to replace an existing loan, revolving facility or invoice finance facility which is at risk due to deteriorating security values or where for cash flow reasons the borrower is struggling to meet the existing repayment structure.

Revolving facility refinance Preservation of part or all of an existing overdraft, or other revolving facility, which would otherwise be withdrawn due to a failure to satisfy the lender’s security requirements.

Invoice finance refinance Preservation of part or all of an existing invoice finance facility which would otherwise be withdrawn due to a failure to satisfy the lender’s security requirements.

Please note that participating lenders will generally only provide EFG facilities of types which are consistent with their normal commercial lending product offerings and are under no obligation to offer the full range of types or values of EFG-backed facilities.

4. List of lenders and application process

There are over 40 participating lenders ranging from the main high street banks to smaller specialist institutions, some of which have a specific geographic, sectoral or product focus.

Details are provided here:

Application process and list of lenders PDF, 438KB, 3 pages

In order to consider using EFG, lenders require the same information that they would use to process a comparable commercial loan application, plus details of any other publicly-funded grants or other support received by the business in the preceding three years. Participating lenders will advise you of their specific requirements. Failure to provide the required information may delay the loan decision or lead to a loan decline. Lenders will typically assess loan applications against their standard lending criteria to determine whether they wish to lend. Where the lender determines the business is viable (i.e. able to meet the monthly loan repayments and ultimately repay the loan in full) but is lacking adequate security to meet the lenders normal lending requirements, they can consider providing a loan under EFG. EFG is managed by British Business Financial Services, a wholly-owned subsidiary of British Business Bank plc, but remains on the balance sheet of the Department for Business, Innovation and Skills. The government plays no role in the lending decision-making process. Once the lender has determined that use of EFG is likely to be appropriate they confirm eligibility and record details of the borrower and their facility via a secure web portal. Businesses that do not meet the lender’s viability requirements are not suitable for EFG. EFG is intended to facilitate lending to businesses which can ultimately repay their loan in full, not to support unviable businesses.

5. The government guarantee

By providing lenders with a government-backed guarantee for 75% of the value of each individual loan, subject to a cap on the total exposure across a lender’s annual portfolio of EFG-backed lending, government and lenders share the risk and facilitate lending that would otherwise not take place. The guarantee provides protection to the lender in the event of default by the borrower – it is not insurance for the borrower in the event of their inability to repay the loan. As with any other commercial transaction, the borrower is responsible for repayment of 100% of the EFG facility. The 75% guarantee to the lender does not mean that the borrower is only liable for 25% of the debt. Where defaults occur, the lender is obliged to follow their standard commercial recovery procedures, including the realisation of any security held and calling upon any personal guarantees which may have been provided, before they make a claim against the government guarantee. The interest rate charged and any other fees and charges applied to the loan are commercial matters for the lender. In addition to the costs and fees charged by the lender, businesses supported under EFG are required to pay a 2% annual premium which partially covers the cost of providing the guarantee. The premium is assessed and collected quarterly in advance throughout the life of the loan based on the outstanding capital balance of the loan (for invoice finance and overdraft guarantees the premium is assessed on the agreed facility limit). The borrower is provided with a premium schedule by the lender as part of their loan documentation and collection is made by Direct Debit under the description ‘BIS LOAN GUARANTEE’.

6. Security and personal guarantees

Under EFG, lenders are entitled to take security, including personal guarantees. This is standard commercial practice and an established mechanism for ensuring a degree of personal commitment to repayment of the loan by individuals with a beneficial interest in the business. The only exception from normal commercial practice is that lenders are expressly prohibited from taking a charge over a principal private residence of a borrower or guarantor as security for an EFG facility. In EFG this means there is a three-way risk sharing between borrower, lender and the government. The extent of any security or guarantee taken is a commercial matter for the lender, but any security taken applies to the debt as a whole and may not be attributed solely or preferentially to cover the 25% of the EFG loan not covered by the government guarantee. The borrower always remains liable for repayment of 100% of the loan and, in the event of a default, any remaining loss faced by the lender after recoveries will be borne between government and lender in the ratio 75:25. EFG should not be seen by borrowers or their advisers as a mechanism for putting personal assets beyond consideration. If the lender refuses to offer EFG on the basis that the borrower had access to security which they were not prepared to put forward, then the lender’s decision would be fully supported by BIS.

7. Further help

The delivery of EFG, including the decision on whether or not it is appropriate to use it in connection with any specific lending transaction, is fully delegated to the participating lenders. EFG is managed by British Business Financial Services, a wholly-owned subsidiary of the British Business Bank plc, but remains on the balance sheet of BIS.

For lenders Staff of participating lending institutions should contact their central processing team or other designated internal EFG expert who is equipped to answer questions in the context of the lender’s own internal policies and procedures, and who can obtain further information from their designated point of contact at the British Business Bank if required.

For businesses Businesses may wish to consider approaching one or more of the participating lenders to discuss their borrowing needs. Businesses with active or historic EFG loans which have any issues relating to their loan, including premium collection or alterations to their repayment profile, should raise them with their lender and not with BIS or the British Business Bank.

A series of frequently-asked questions are available here:

Enterprise Finance Guarantee FAQs PDF, 37.4KB, 8 pages  

8. Loan declines and complaints

Please note that neither BIS nor the British Business Bank are parties to or will intervene in the commercial relationship between borrower and lender in the event of disputes. Customers dissatisfied with the experience of dealing with their lender should raise their concerns through the lender’s own customer complaints process. Businesses that have loan applications declined have the right to appeal the decision. This process can also be accessed through banks’ existing complaints procedures. If businesses do not feel that their complaint has been handled appropriately, those with a turnover of under €2 million and fewer than 10 employees have the option of taking their complaint to the Financial Ombudsman Service or on 0845 080 1800. Businesses may also wish to seek legal advice if there is a contractual dispute.

9. Alternative sources of finance

There is a wide range of financial products and support available from a broad spectrum of providers including banks, business angels, Responsible Finance providers, venture capitalists and trade and asset finance specialists. The Business finance and support finder has a list of funding available in the UK.  

10. Economic evaluation

An independent piece of research entitled Enterprise Finance Guarantee (EFG) scheme: economic evaluation looks at how effective EFG is by examining the economic impact on businesses that received an EFG-backed loan in 2009.