Imagine this – you’re looking for a business to buy, and you think you’ve found the perfect one. It’s in a location you love, at the right price, and has potential for the future. There’s just one snag – it’s on a leasehold, and you don’t have property to use as security. What do you do? Well, that’s where a very viable, but lesser-known option for finance comes in – the EFG Scheme.
What is the EFG Scheme, and how does it work?
The Enterprise Finance Guarantee Scheme is a government initiative set up to help businesses who might be lacking security to raise finance. Without anything to guarantee against the money they’re putting on the line, lenders are understandably somewhat reticent to take on unsecured loans. The EFG helps mitigate that.
Through the EFG, small businesses apply to a participating lender for a loan. The Government then provides a guarantee of up to 75% of the value of the loan to the lender, allowing them to proceed without the normal risk associated with unsecured loans.
When should you consider an EFG Loan?
An EFG loan is well-suited for most unsecured loans. If you’re looking at buying a business that’s on a leasehold, or obtaining capital for an existing business that doesn’t own its property, then the EFG could certainly be an option. There’s no strict guide on when to use and not use the EFG – if you’re looking at an unsecured loan, it’s worth mentioning!
What should you be aware of about EFG loans?
The EFG Scheme is a good route for unsecured loans, but it still has things that need to be considered before you try and apply for one. The first is that an EFG loan is not a way to avoid putting down security for a business loan. If you have security available, lenders may expect you to use it to guarantee the loan.
The second is that EFG loans are more expensive than normal. Loans through the EFG pay a 2% premium on top of the normal interest rates a lender would charge. This can add up if you’re going for a larger loan.
Finally, EFG loans are limited in scope and sources. For example, EFG loans only go up to £1m – if you want a larger business loan, you’ll need security. The EFG scheme is also only offered by about 40 UK lenders. That might seem like a big number, but there are over 300 potential lenders for business loans in the UK – 40 is only a small slice of them.
Can your business get a loan under the EFG Scheme?
The EFG scheme is certainly an option for many businesses looking at an unsecured loan. It’s got plenty of benefits. However, that doesn’t mean that it’s the right call for everyone. Not every business will be suited to EFG loans. You might operate in the wrong way, or be in the wrong industry, or any one of a number of other reasons.
Business finance is about finding the right options for your business, not trying to force your business to fit requirements. The benefit of the vast array of options for finance is that there are always alternatives if one particular type isn’t a good fit. The EFG scheme might be the right option for you, it might not – but then another option will be!
If you think that your business might benefit from an EFG Scheme loan, or any other type of business finance. then just give us a call!
ASC Finance for Business are Commercial, Business and Property Finance Brokers with 50 years of arranging faster, simpler, better finance for small businesses.
To speak to your local ASC Regional Director about getting finance, click here.