The Government has demanded that banks revitalise a flagship lending scheme for small firms after research suggested its ability to power growth and job creation is at odds with lenders’ dwindling desire to access it.
Michael Fallon, the Business Minister, promised to “hold banks to account” until lending levels under the Enterprise Finance Guarantee improve.
The EFG, which was introduced in 2009, sees the Government act as guarantor on 75pc of individual bank loans of between £1,000 and £1m and is designed to help small businesses that have viable business proposals but no security to offer against a loan.
A new study by Durham Business School has found that the initiative has added £1.1bn to the economy. Researchers said it created 6,500 jobs and safeguarded more than 12,000.
It also found that the scheme was effective in helping businesses which would otherwise struggle to obtain bank finance, and that it remained a “viable” initiative.
However , Mr Fallon is angry that EFG lending levels are declining . The value of loans provided through the scheme has collapsed by 67pc since its peak in the third quarter of 2009.
“Enterprise Finance Guarantee loans are delivered through the banks, and I want to see them making more use of the scheme. It is getting money to where it is needed, saving jobs, and delivering a huge benefit for the wider economy.
“Clearly the demand is there for this type of financial support, so we must start to see an increase in take-up.”
Mr Fallon has questioned why lending through the EFG has fallen so far, despite government moves to make it more attractive to lenders and allowing a broader range of small companies to qualify.
In an effort to improve take-up, he has begun to publish comparisons of banks’ EFG performance. In the three months to December, Royal Bank of Scotland (LSE: RBS.L - news) provided 315 EFG loans, worth a total of £29.7m. HSBC (LSE: HSBA.L - news) lent £15.7m across 128 loans, while Barclays (LSE: BARC.L - news) made 76 loans, worth £8.5m.
The Business Minister said: “I will continue holding the banks to account until lending levels improve.”
He is said to be concerned that the EFG is not understood or offered properly at relationship-manager level at some banks.
Mr Fallon’s intervention follows a call from Vince Cable, the Business Secretary, for “more open-minded thinking” at the Bank of England over fears that the larger Funding for Lending Scheme is not helping small businesses.
Mr Cable said he has written to Paul Tucker, deputy governor of the Bank of England, asking for the £80bn lending scheme to be “adapted to deal with the needs of SMEs”.
The emergency initiative was launched last July in an attempt to reduce lending costs for households and businesses, and in turn, increase the flow of credit.
The Funding for Lending Scheme has improved mortgage availability, but there are few signs that it is boosting credit provision for small businesses.