Insider Media Limited

Lending under the government’s Enterprise Finance Guarantee (EFG) scheme has fallen a further 7 per cent across the East Midlands in the last quarter. That’s according to research by Aldermore, which suggests that lending totalled £9.8m in the third quarter of 2010 – a drop of £700,000 on the 2009 figures.

Across the UK, lending under the EFG scheme has now fallen by 35 per cent in the last year from £217m in Q3 2009.

Aldermore described the failure to get funding to small businesses in regions most exposed to public sector spending cuts as “worrying”.

Tony Smedley, managing director of Aldermore Invoice Finance in the Midlands, said: “With so many SMEs unable to secure credit from big banks, the continuing decline in lending through the EFG scheme needs to be reversed.

“It is particularly worrying that certain regional economies are suffering some of the greatest falls in funding. These areas are amongst those with the highest reliance on public sector jobs in the UK.

“EFG is a great scheme - it has been an excellent way of making extra capital available to fund small businesses. Unfortunately, amounts actually lent under the scheme have declined over the last year.”

The government has recently announced changes to the EFG scheme which may have made it “less attractive to bigger banks”, Smedley added.

The current guarantee of lending under the EFG is capped at 9.75 per cent of total funds lent out by each bank. However, the cap on the guarantee is set to be reduced even further to 9.225 per cent from 1 April, 2011.

Smedley said: “Rather than reducing the EFG guarantee for lenders, increasing the guarantee is one way the government could encourage the big banks to lend more to small businesses.

“If the government were willing to underwrite a larger proportion of the EFG loans, then more loans might be written.”