What is the Enterprise Finance Guarantee (EFG)?
The Enterprise Finance Guarantee (EFG) is a financial scheme launched by the UK government to support small and medium-sized enterprises (SMEs) requiring additional finance to operate or expand. Under the EFG scheme, the government guarantees 75% of a company’s overdraft, provided the company pays an annual premium of 2%. Despite the government guarantee, the borrower remains responsible for repaying 100% of the loan.
Key Features of EFG:
- Eligibility: Available to UK companies with an annual turnover of no more than £41 million.
- Guarantee: The UK government guarantees 75% of the loan amount.
- Premium: Borrowers pay a 2% annual premium to secure the guarantee.
- Liability: Borrowers are responsible for repaying the full loan amount.
- Scheme Initiation: EFG replaced the Small Firms Guarantee Scheme in January 2009, offering broader eligibility criteria.
Examples of EFG Use:
Acme Manufacturing Ltd: A small manufacturing firm with an annual turnover of £30 million taps into the EFG to secure a £1 million overdraft. The government guarantees 75% of the overdraft, helping the company secure essential working capital while it pays a 2% annual premium.
Tech Start Up Co.: A tech startup in its growth phase with a turnover of £5 million utilizes the EFG to obtain a £500,000 loan. The government’s guarantee helps in securing the loan, allowing the company to invest in new technology and hire additional staff.
Frequently Asked Questions:
Q1: Who qualifies for the Enterprise Finance Guarantee? Any UK-based company with a turnover not exceeding £41 million qualifies for the EFG. This includes sole traders, partnerships, or other business entities.
Q2: What is the maximum loan amount under the EFG scheme? While there isn’t a specific maximum loan amount, the EFG is typically used for loans ranging from £25,001 to £1.2 million.
Q3: Does the EFG cover both overdrafts and loans? Yes, the EFG can cover term loans, overdrafts, invoice finance, and asset finance facilities.
Q4: Are personal guarantees required under the EFG? Personal guarantees may be required by lenders as per their own lending policies, although the EFG itself provides a government-backed guarantee.
Q5: What happens if the business defaults? In case of a default, the lender is able to claim the 75% guarantee from the government. However, the business remains liable for the full 100% repayment of the loan.
Related Terms:
- Overdraft: A facility provided by banks allowing businesses to withdraw more money than is available in their account up to a specified limit.
- Small Firms Guarantee Scheme: The predecessor to the EFG, offering limited eligibility and less extensive support.
- Term Loan: A loan provided for a fixed amount and repayable over a predetermined period, commonly supported by EFG.
Online Resources:
Suggested Books for Further Studies:
- “Finance for Small and Entrepreneurial Businesses” by Richard Roberts - A comprehensive guide on securing finance for small businesses in various stages of growth.
- “The Financier’s Guide to the UK SME Market” by Peter Temple - Insights into the financial markets related to SMEs, including funding mechanisms like EFG.
- “Small Business Financing: How and Where to Get It” by Charles H. Green - In-depth approaches to securing finance for small businesses, with practical examples.
Accounting Basics: “Enterprise Finance Guarantee” Fundamentals Quiz
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