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Please sir, can I have some more?
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The government has launched a loan guarantee scheme for businesses. But will it help hauliers?
Words: Louise Cole All recessions see poor businesses fail, but this one is proving particularly bloody as commercially viable businesses are going to the wall through a lack of investment funds, working capital or credit.
As a result, the government has offered £1.3bn in government-guaranteed loans, available from 14 January, for businesses with a turnover of less than £25m that are struggling to get credit elsewhere. Without doubt, recent events left the culture and confidence in the banking system dented, and credit has been reeled in so tight that many firms are left flopping and gasping on the bank. A number of CM readers have already called us with tales of sudden 'revisions' to their overdraft facilities.
The government has tried to use its influence with the banks that received government bail-out money, but (so far) they have remained impervious to the arm-twisting.
The question is: will their reticence to lend change because of this initiative? The Federation for Small Business (FSB) says it welcomes the scheme, called the Enterprise Finance Guarantee, and it "should force banks to start lending again': However, just four weeks later, more than half its members say they do not believe the scheme will affect banks' lending policies, and only 8% of businesses that believe they are eligible were approved for a loan.
So what are the difficulties truck operators face to get a loan? The first is that the government has delegated all lending decisions to the participating high-street banks, and it is hard to see an alternative to this policy The second potential stumbling block is that the guarantee covers only 75% of the loan amount, again to ensure that everyone has a stake in administering this money sensibly.
The third and this could be a killer for many road transport concerns is that you have to prove you have a commercially sound business with potential for growth.There are lots of road transport firms that are already heavily leveraged, and they may have been buying business for some time to simply keep trading.
Unless they are extremely good at pulling rabbits out of hats, these people will still have a particularly hard time convincing their banks to lend to them, whatever cash Mr Mande!son has stumped up in the background.
The banks are stressing that their mission is to fund -sustainable business7A spokesman for Clydesdale Bank says that although the company has always had a conservative approach to lending, its total loans increased substantially in 2008, and the chief executive predicts that although that growth will slow, it will continue to make more credit available in 2009.
He says that the similarities with the Small Business Loan Fund are an advantage because branch managers will feel comfortable with the premise of the new scheme. But firms should be aware it may take time for banks to train all of their staff in the new offerings.
Who can apply?
The first place to get information and guidance on business loans is Businesslink (see below right). It has an online questionnaire that takes about three minutes to fill in. It establishes broadly which government support or loans your company would be eligible for.
What is the Enterprise Finance Guarantee?
It's a l.3bn fund with 75% of the money put up by the government; the rest conies from banks. It can be used for working capital or investment. The scheme will provide loans of between £1,000 and ilm and they can be for any term between three months and 10 years. You can use it to refinance existing loans or convert overdrafts into loans to free up cash. The scheme runs until 2010.
The EFG replaces the Small Business Loan Fund, which worked in a similar way, but was more limited in its scope.
Banks that have signed up to the EFG include Barclays, Clydesdale (Yorkshire Bank), HBOS, Lloyds TSB, HSBC. RBS/NatWest and Northern Bank.
What is the Working Capital Scheme?
Initially introduced for exporters, this is now potentially af2Obn fund to create a portfolio of loans for businesses with up to a £500m turnover with the government guaranteeing 50% of the lending.
It is designed to keep working credit lines open. As an adjunct, the government is also in talks with credit insurers to lower premiums that may ease fuel credit in the longer term.
Capital for Enterprise Fund
This is a £75m fund aimed at companies that already have high levels of debt to secure long-term finance. Part of the