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Government lending scheme 'essentially meaningless'

Date Added: 22/10/2012  

A government-run business lending scheme designed to increase the flow of credit to small companies in the construction sector has been described as being "essentially meaningless".

Accounting firm Wilkins Kennedy stated money from the Enterprise Finance Guarantee (EFG) scheme fell by 86 per cent to £3.5 million in the three months to June.

This is down from a record high of £25 million in the same period three years ago, reports the London Evening Standard.

Nick Parrett, of Wilkins Kennedy, explained the lack of business funding has had a serious impact on the state of the UK's construction sector over the course of the last few years, adding the economy has also seen difficulties as a result of this:

"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," he said, noting many jobs have been lost and a lot of others are at risk due to a lack of lending to firms in the UK's construction industry at the present time.

A Business Department spokesman described the EFG as a demand-led loan guarantee scheme that should be seen as being complementary to commercial lending rather than as a replacement.

It was claimed by the spokesman that since May 2010, more than 8,800 small and medium-sized enterprises have been offered EFG loans with a total value in excess of £900 million, although he accepted the use of the scheme has "flatlined" in recent months.

He said the government has worked hard to make the scheme easier to use, raising the level of lenders' EFG portfolios to which the government guarantee applies from 13 per cent to 20 per cent, as well as extending it to include businesses with up to £41 million turnover.

Lee Manning, president of R3, recently said it is construction firms that are most at risk of closing down in the coming months due to financial difficulties.

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Posted by Julie Cutts

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