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Lending scheme for small firms isn't working: report

A flagship government scheme aimed at boosting lending to small businesses is failing, a report suggests. Lending under the Enterprise Finance Guarantee (EFG) has plummeted by 42% in the past year, according to the financial services group Syscap.

The value of loans offered under the scheme fell to £433m in the 12 months to the end of June, down from £742m in the previous 12-month period.

Syscap pointed out that in the most recent quarter, between April and June, just £93.1m of loans were offered to small businesses under the EFG scheme, down from a peak of £254.9m in the same quarter of 2009.

If the trend continues, the Government will fall short of its target of reaching £600m allocated for additional lending under the scheme between April 1, 2011 and March 31, 2012.

Philip White, the chief executive of Syscap, said: "With economic performance in the past two quarters looking lacklustre and the ongoing eurozone crisis continuing to erode business confidence, an expansion of lending under the EFG scheme is urgently needed to help put the economy and job-creation firmly back on the growth track."

The Enterprise Finance Guarantee scheme, announced in November 2008, was designed to increase the availability of finance for small and medium enterprises. The Government guarantees 75% of the value of a loan to a business with a turnover of less than £25m.

Mr White said the scheme should be widened to include leasing.

Excluding it may be putting an artificial curb on demand for EFG loans, that in turn could be putting an anchor on economic growth, he claimed.