Department for Business, Innovation and Skills
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Enterprise finance guarantee scheme to extend lending to businesses and social enterprises
Business Secretary Lord Mandelson today announced changes to the Government's Enterprise Finance Guarantee Scheme to help improve lending to businesses and social enterprises in disadvantaged areas. The announcement came as he jointly chaired a social enterprise summit with Liam Byrne.
The changes will provide extra support to Community Development Finance Institutions by allowing them to access bank loans, worth up to £20m, through the EFG scheme. Unity Trust Bank, in response to this change, also announced today that it is making an additional £5m available for onward lending by CDFIs.
Community Development Finance Institutions, provide vital financial support to businesses and social enterprises which are unable to access bank lending due to the higher risk associated with supporting the disadvantaged groups and communities to which they lend.
Secretary of State for Business Lord Mandelson said:
"Community Development Finance Institutions play an extremely important role supporting small businesses and social enterprises in disadvantaged areas.
"In the current economic climate, these institutions are an increasingly important source of finance and investment for small businesses and social enterprises that have been unable to access finance from banks. These changes to the Enterprise Finance Guarantee Scheme will enable more of these institutions to raise additional lending worth up to £20m."
Minister for the Cabinet Office Liam Byrne said:
"Social enterprises, businesses that make a difference as well as a profit, can help Britain emerge from this recession stronger.
"I warmly welcome Lord Mandelson's announcement today as a step that will help social enterprises flourish. Already over 60,000 social enterprises with a combined turnover of around £27bn are finding innovative solutions to the toughest social and environmental problems.
"The Government is today holding a summit with social enterprise leaders to reaffirm social enterprise at the heart of government thinking."
The Enterprise Finance Guarantee Scheme currently has more than £344m of eligible applications from 3,071 firms that have been granted, are being processed or assessed. And 2059 firms have now been offered loans totalling over £186m.
To help social enterprises make the most of the new investment that will be available the Cabinet Office, in partnership with the National Endowments for Science, Technology and the Arts (NESTA), today announced a year long Access to Investment Programme. This programme will aim to find ways for social enterprises to gain the advice and support they need to access new forms of growth finance.
Notes to Editors
The Enterprise Finance Guarantee is a £1bn loan guarantee scheme delivered through the banks that will enable an additional £1.3bn of lending to businesses up to end March 2010. EFG provides a 75% government guarantee on individual loans to viable businesses with less than £25m turnover. It can be used to support new loans, refinance existing loans where the loan is at risk due to the deteriorating value of security or to convert part or all of an existing overdraft into a loan to release capacity to meet working capital requirements. EFG is open to businesses with an annual turnover of up to £25m seeking loans of £1,000 through to £1million, repayable over a period of up to 10 years.
The changes BERR has made today allow for an EFG guarantee on capital lent to the CDFI by accredited lenders. This would effectively provide a guarantee at the level of the CDFI's lending to SMEs. By providing this greater level of security to the banks that their capital loan to CDFIs can be repaid we expect to encourage up to £20million of additional loans to the CDFI sector.
Community Development Finance Institutions (CDFIs) are independent financial institutions that provide loans to businesses, individuals and social enterprises in disadvantaged areas and who are unable to raise finance from mainstream lenders. There are between 70 - 80 in the UK the majority are Industrial and Provident Societies or Companies Limited by Guarantee. The CDFIs' Trade association (the CDFA) publishes Inside Out, every two years. The most recent available data on CDFI activity (covering up to 2007) was published in March 2008. It reports that the sector had onward invested £287m, created and sustained 33,000 jobs and levered an extra £330m of finance into the businesses and households it serves.
Government has launched a range of Real Help for Business in the current situation. I attach All measures offering real help for small business can be accessed via the Business Link portal:
* The http://www.businesslink.gov.uk/realhelp
portal
* Their local Business Link adviser on 0845 600 9
006
* Information on finance schemes and an initial assessment
of eligibility is available at http://www.businesslink.gov.uk/realhelp/finance
Social Enterprise Access to Investment programme
This Social
Enterprise Access to Investment programme will be run by the
National Endowment for Science, Technology and the Arts (NESTA)
and is jointly funded by the Office of the Third Sector in the
Cabinet Office.
The programme will run for one year to provide
insight into how Investment Readiness Providers (IRPs) that
provide advice and brokerage for social enterprises may be
sustainably financed in the future. This aims to increase the
quality of social enterprise investment proposals; their chances
of success; and the appeal of social enterprises as investment vehicles.
While, Social Enterprises can benefit from a wide range of financial products they are not always able to access the finance appropriate for them. Evidence suggests that this might be due to the fact that many SEs are not always investment ready and can have low levels of financial literacy. This translates into higher transaction costs for investment in these organisations.
According to research undertaken, there is a lack of appropriate financial advice for social enterprises and existing advice is often targeted at mainstream businesses.
One of the key features of the programme is a success fee that will incentivise 'brokers' of advice to help social enterprises access funds. These fees will be performance based and only payable to investment readiness providers in the event of social enterprises successfully accessing risk capital. The aim is to adopt the model of success fees proven in other markets in the developing capital market for businesses driven by more than just the financial bottom line.
