Funding scheme 'now meaningless'

Bank lending to small building firms through a Government lending scheme has dwindled to almost nothing, according to a new report.

Accounting firm Wilkins Kennedy said that money from the Enterprise Finance Guarantee (EFG) scheme fell by 86% to £3.5 million in the three months to June, compared with a record high of £25 million in the same period three years ago.

Nick Parrett, of Wilkins Kennedy, said: "The lack of funding for small construction businesses has had serious implications on the construction industry as a whole, as well as for the wider economy.

"In 2011 alone, over 3,500 construction companies went bust. Problems with funding and the financial stability of small suppliers can hit the entire supply chain and have led to many building projects stalling.

"A lot of jobs have disappeared or are at risk. These figures show the EFG scheme is now essentially meaningless for getting funding to small businesses in the construction sector."

A Business Department spokesman said: "The Enterprise Finance Guarantee is a demand-led loan guarantee scheme. It is complementary to commercial lending - not a replacement.

"Since May 2010, over 8,800 small and medium-sized enterprises have been offered EFG loans with a total value in excess of £900 million.

"But recent use of the EFG scheme has flatlined. Government has worked with the banks to make the scheme easier to use, raising the level of lenders' EFG portfolios to which the Government guarantee applies from 13% to 20% and extending it to include businesses with up to £41 million turnover.

"So it's now up to the banks to make full use of these flexibilities and pass on the benefits to viable businesses."