Helping increase access to finance

The government’s aim is for more UK entrepreneurs, small and medium-sized businesses (SMEs) to be able to access the finance they need to enable greater levels of enterprise, whether expressed through start-up or growth. They are doing this in a number of different ways.

First, they are encouraging all businesses to seek more advice about their finance. In the UK only 25% of small businesses think of themselves as being good at getting external finance. As well as working with the financial advice industry, the government is providing free advice and guidance about growing your business.

Second, the government also makes a number of interventions in financial markets to help increase access to finance to British companies.

Existing Government support for SMEs

Enterprise Finance Guarantee (EFG)
  • How does it work? EFG is a loan guarantee scheme designed to facilitate additional lending to viable SMEs lacking the security or proven track record for a commercial loan. It is not a replacement for commercial products and will account for 1%-2% of total lending to SMEs. The Government provides the lender with a 75% guarantee for each individual loan, subject to a cap on total claims arising from a Lender’s portfolio.
  • Who delivers the scheme? Accredited lenders. There are currently 45 accredited lenders, including all main UK High Street Banks. New lenders are being accredited, including Metro Bank, who will offer EFG guaranteed loans from January 2012. All lending decisions are made by the lender.
  • Who can apply? EFG is open to SMEs with an annual turnover of up to £41m seeking loans between £1000 and £1m, repayable over a period of 3 months to 10 years.
Enterprise Capital Funds (ECFs)
  • What are they? For many young innovative firms equity finance is the best option to reach their high growth potential, but many struggle to obtain this form of finance. This is often because the relative high costs of undertaking due to diligence in early-stage companies, in relation to the deal size, often means that investors prefer to make larger investments in later-stage companies. This disconnect is called the ‘equity gap’. Enterprise Capital Funds (ECFs) address this market weakness.
  • How does it work? The ECF uses government funding alongside private sector investment to bridge this gap. Eleven such funds have been launched since 2006.
  • Who delivers the scheme? ECFs are administered by a government-appointed fund manager Capital for Enterprise Limited (‘CfEL’). Email CfEL on or phone 0114 206 2131

For more information, visit Enterprise capital funds.

Business angel co-investment fund
  • What is it? The £50m Business Angel Co-Investment Fund aims to support angel investments into high growth potential early stage SMEs, particularly in areas worst affected by public spending cuts.
  • How does it work? The fund has been created with a grant from the Regional Growth Fund and is able to make initial equity investments of between £100,000 and £1 million in SMEs alongside syndicates of business angels (subject to geographical restrictions and upper limit of 49% of any investment round). Investment decisions will be made by the independent Investment Committee of the fund based on detailed proposals put forward by business angel syndicates.
  • Who delivers the scheme? The fund has been designed and established by a consortium of private and public bodies with expertise in business angel investment. It is a private sector body with clear objectives to boost the quality and quantity of business angel investing in England, and to support long-term, high quality jobs in high growth companies.
National Loan Guarantee Scheme (NLGS)
  • What is it? The National Loan Guarantee Scheme is designed to give businesses (with turnover of up to £50m) access to cheaper finance, with reductions in the interest rates of 1% or equivalent on loans and asset finance facilities
  • How does it work? The scheme will allow banks to raise up to £20bn of funding guaranteed by the government, to lend directly to smaller businesses at a lower cost
  • Who will deliver the scheme? Banks that sign-up to participate in the scheme and commit to pass through this lower cost of funding to business customers. Customers should apply to participating banks
  • Who will be eligible to apply? UK businesses with a turnover of up to £50m
  • How will businesses benefit? Smaller businesses do not have ready access to capital markets and are therefore reliant on banks for credit. This scheme will ensure that customers are able to borrow more cheaply than they otherwise would have been able to. In many cases, the scheme will lead to a reduction in the cost of business loans of up to 1 per cent.
Business Finance Partnership (BFP)
  • How does it work? The BFP has invested an initial £1bn in loan funds, alongside private sector co-investors. These funds are then lent to mid-sized businesses, helping to diversify the channels of finance available to them. The government will also consider options for investing through other non-bank lending channels that reach SMEs.
  • Who will deliver the scheme? HM Treasury will operate the BFP, making decisions about which loan funds to invest in. However, the managers of those loan funds will then make individual lending decisions. It will focus initially upon co-investment, with private sector investors, in managed funds that lend directly to UK businesses.
  • Who is eligible? Businesses in the UK with a turnover of up to around £500m.
  • How will businesses benefit? The Business Finance Partnership aims to both increase the supply of capital through non-bank channels and, in the longer term, to help to diversify the sources of finance available to businesses.
Seed Enterprise Investment Scheme (SEIS)
  • How does it work? Seed Enterprise Investment Scheme will provide income tax relief of 50% for individuals who invest in shares in qualifying companies, with an annual investment limit for individuals of £100,000 and cumulative investment limit for companies of £150,000. The government will also offer a capital gains tax holiday for investments made into the new scheme. This will provide for a capital gains tax exemption on gains realised on disposal of an asset in 2012-13 and invested through SEIS in the same year.
  • Who is eligible? Businesses in the UK with no more than 25 workers; the company must be a start-up business and the company’s assets must be lower than £200,000
  • How will businesses benefit? The relief is claimed by investors rather than the investee companies, therefore there is unlikely to be any additional administrative burden on companies. It is estimated that 300 or more companies will benefit from investment under the scheme in its first year.

There are also a number of government-run grant schemes for small businesses. For more information, visit SMEs Access to Finance and the business support finder.