You guys are not wrong!!! There is a great deal of confusion over this scheme, I should know, I have to advise Businesses on it!!
The main confusion is over the security required from the client that the Banks will require, see the Security section below, but the chances are if you haven't already given the banks every ersonal security that you possess (and your first born!!) The chances are you will not get this loan.
The Enterprise Finance Guarantee (EFG) was announced by HM Government in late 2008 as part of the measures to assist small & medium sized businesses.
The EFG is designed primarily as a means of providing working capital to businesses, however loans can also be provided for other purposes such as asset purchase, business expansion or acquisition, or property/equipment purchase.
Applications will be considered where a business has a viable proposal but may incur difficulty in obtaining conventional finance because of lack of security.
Main Principles
BERR requires that before sanctioning any facilities under EFG the Bank has confirmed the following:
The applicants plans are viable and would meet our usual commercial requirements for a loan.
The Bank would wish to lend to the applicant and that all the applicants available collateral has been exhausted.
EFG loans may be used to refinance existing overdraft borrowing (the current utilisation not the limit)
Eligibility
Businesses of any age may apply for EFG.
There is no maximum number of employees. The applicants turnover during the previous 12 months must not exceed £25m. Where an applicant is part of a corporate group (whether a parent, subsidiary or holding company), the £25m figure relates to the entire group.
There are few sectoral restrictions although an eligibility check should be undertaken in the event of a customer operating in any of the following sectors or in any other instances in the event of doubt:-
Fishing Agriculture Shipping Forestry Performing Arts Education Healthcare Social Care Services Coal and Steel
Purpose of Facility
EFG loans may only be used for business purposes, principally to provide working capital, or to fund expansion or capital expenditure in the UK. Other purposes such as acquisition/purchase of businesses, land/property purchase, and start-up costs are also permitted.
EFG loans may be used to refinance existing overdraft facilities afforded by the Bank.
EFG loans can be used to fund share purchases in respect of business acquisition transactions, subject to the Bank being satisfied that structuring the purchase in such a manner is appropriate.
EFG loans are available to businesses which export but may not be used to finance large individual transactions which would be more suited to Trade Finance facilities.
EFG Parameters
Borrowing Amount
The minimum loan amount is £1,000 (£26,000 for Fixed Rate Loans).
The maximum loan amount is £1m.
The loan amount must be in multiples of £500.
Any loans previously provided under SFLGS, even if still outstanding, do not count towards the £1m EFG limit.
There is no restriction on the number of EFG facilities a customer may have so long as the aggregate of these facilities (based on the original amount granted, not the current outstanding balance) does not exceed £1m.
Where more than one business wishes to apply for an EFG, each separate business may qualify for an aggregate amount of up to £1m, provided that the applicant is not part of a corporate group and each separate business meets the eligibility criteria.
Where an applicant is part of a corporate group (whether a parent, subsidiary or holding company), the maximum figure available to the entire group is £1m.
Term
The minimum term is 3 months.
The maximum term is 10 years (including any capital repayment holiday).
Drawdown
Tranche drawdowns are permitted, subject to a maximum of four tranches. If the loan is to be drawn in tranches, no capital repayments are to be made until the loan is fully drawn, which must be within 1 year of the date of the EFG loan agreement.
The first tranche must be drawn no later than 6 months after the date of the EFG loan agreement. Failure to draw the loan within this period will necessitate the submission of a new application.
Capital Repayment Holidays
Capital Repayment Holidays, in multiples of 3 months, are permitted up to a maximum of 3 years.
Repayments
EFG loans must be repaid on a capital only (straight line) basis with interest being debited quarterly to a separate account held at the same branch as the loan account.
Capital and interest loans (actuarial) or interest only (bullet) repayment loans are not permissible.
Loan repayments may be monthly or quarterly.
Security
General
Before offering a borrower an EFG facility, the Bank must be satisfied that it would have offered conventional finance but for the lack of security.
Pledging of Personal Assets
The Bank must be satisfied that all available personal assets have been pledged for conventional facilities, before considering lending under EFG.
The Bank must be satisfied that the applicant is personally committed to the venture, and is not using EFG as a means of avoiding pledging personal assets.
If the applicant is not prepared to allow all their available personal assets to be used to secure conventional lending, this renders them ineligible for EFG.
In exceptional circumstances, personal guarantees may be taken in respect of EFG loans.
The Bank is not permitted to take a charge over guarantors principal residences in support of personal guarantees.
Pledging of business assets
Applicants should be asked to pledge premises, machinery and other assets used in the business as security for the EFG loan, usually in the form of a fixed or floating charge
Guarantee Premium
A guarantee premium is payable to the Government to the value of 2% per annum on the reducing balance of the loan.
Premiums will be reduced to 1.5% (i.e. a 25% discount) will be applied to premiums due and collected in 2009. This will be managed centrally by the Governments collection agents; there is no requirement for the Bank to amend premium schedules.
All premiums are paid quarterly by Direct Debit.
