Small firms need to be more aware of European loans

3 February 2010

More needs to be done to spread the message about the availability of affordable business loans from the European Investment Bank, a minister has conceded.

Treasury Minister, Ian Pearson said of the loans: "I don't think we have made as much of this as we should as a government. We pushed the Enterprise Finance Guarantee (EFG) quite hard. But as we move into the recovery I think this is an ideal product for a lot of companies to be looking at as they look to invest in the future."

So far, the UK banks that participate in the scheme have dipped into EIB funds to the tune of £1.39 billion, of which £726 million have been lent to 2,769 small businesses.

The banks ­- HBOS, Barclays, Close Brothers, Lloyds TSB, RBS Santander UK and Ulster Bank are taking part in the scheme - lend the money on a matched funds basis.

Some £4 billion of EIB finance was secured by the government for SME borrowing between 2008 and 2011.

The loans are less expensive than those offered by high street banks because the EIB, with its secure credit rating, can buy money from the wholesale markets at a cheaper rate.

Compared with the Enterprise Finance Guarantee, the UK government's main business loan support scheme, EIB interest rates can be as much as 4.5 per cent lower. The EFG carries a 2 per cent interest charge over and above bank lending rates.

But EIB borrowing can only be used for capital investment rather than working capital.

To date both the EFG and the EIB scheme have seen roughly the same amounts loaned to businesses.

But Mr Pearson said that EIB business borrowing needs a higher profile.

The Minister commented: "I have been very keen to put out the message to companies that this is a good way for businesses to take advantage of opportunities for growth - take out a long-term loan that's cheaper than the normal loans from the banks.

"We have pushed the EFG quite hard. But as we move into the recovery I think this is an ideal product for a lot of companies to be looking at as they look to invest in the future."

Mr Pearson added: "Businesses in general need to be aware of what the EIB can offer, not just small and medium enterprises but large companies as well. I have always thought that the UK corporate sector has not taken sufficient advantage of the EIB for a number of years."

John Wright, national chairman of the Federation of Small Businesses (FSB), called on more banks to take part in the scheme: "Tracking research by the FSB shows that credit conditions for SMEs continue to stabilise, with more requests for credit being accepted. Further promotion of EIB loans will continue to help the smallest companies through the recovery."