Speaking to the Community Development Finance Association (CDFA), Mr Prisk set out reforms to the Enterprise Finance Guarantee scheme (EFG) to support community development finance institutions (CDFIs); announced he is issuing guidance to CDFIs to enable greater use of current support; and directly invited CDFIs to bid to the Regional Growth Fund.
Mr Prisk said that the Government will increase access to the scheme (which guarantees 75 per cent of a loan to small businesses) for CDFIs, which typically make more risky investments than other lenders. From April 2011 the Government will pay out on defaults of up to 20 per cent of each lender’s Enterprise Finance Guarantee (EFG) portfolio on the first £1 million of loans, an increase on the current 13 per cent.
CDFIs have an important role to play in supporting communities. They are typically not-for-profit groups that lend to businesses and individuals that have been turned down by mainstream finance institutions. The CDFA’s Inside Out report released today revealed that last year the industry made 19,000 loans, worth £200m as well as creating and supporting 8,600 jobs and 2,000 businesses.
Mr Prisk is providing guidance to enterprise CDFIs to enable them to take advantage of a little-used aspect of the EFG, which enables banks to lend directly to CDFIs, boosting their loan capacity. Under this scheme CDFIs are exempt from the usual two per cent premium on the loans.
He invited CDFIs to bid for funding from the Regional Growth Fund, which will target regions that are too dependent on the public sector. The Government is also developing a Big Society Bank to support the growth of the social investment market and make it easier for social enterprises and other enterprising civil society organisations, including CDFIs, to access capital. Mr Prisk also invited CDFIs to work with Government as it develops the Big Society Bank.
Mr Prisk said: “I want to encourage people from all backgrounds to start their own business. Community development finance institutions are extremely important in supporting business in communities that need a boost in enterprise and economic growth.
“With changes to the Enterprise Finance Guarantee and our continued work on the Big Society Bank and Regional Growth Fund new opportunities are opening up for CDFIs to increase their loan base. CDFIs are well positioned to make strong bids for RGF support in line with the objectives of the fund.”
Notes to editors
- The Enterprise Finance Guarantee is a targeted measure which supports additional lending, of between £1,000 to £1m, to viable small businesses (with a turnover up to £25m) that lack sufficient collateral or financial track record to access a normal commercial loan. These are firms who can ultimately pay back the loan. EFG was introduced in January 2009 (replacing the Small Firms Loan Guarantee) as a temporary measure in response to the economic downturn which led to the decline of credit to SMEs. The Coalition Government increased the facility for 2010/11 by £200m extension to £700m, and will continue the Enterprise Finance Guarantee until 2014-15, providing up to £600m of additional lending to around 6,000 SMEs next year alone and, subject to demand, over £2bn in total over the next 4 years. To enable smaller and specialist lenders to participate fully as EFG accredited lenders, the level of payouts that Government will make against defaults will increase from 9.75% to 15% (13% to 20% gross cover provided) for the first £1 million of EFG-backed loans made by every lender accredited under the scheme. This should encourage increased use of EFG by small and specialist lenders.
- Community Development Finance Institutions (CDFIs) are independent financial institutions, serving a specific disadvantaged geographic area or disadvantaged groups (e.g. charities, non-profit distributing social enterprises or organisations supporting specific groups such as ethnic minorities). They lend to start-up companies, individuals and established enterprises from within that area or community who are unable to access finance from mainstream banks.
- A copy of the Inside Out publication can be found on the CDFA website http://www.cdfa.org.uk/.
- The Regional Growth Fund is a £1.4bn fund that will operate over three years from 2011 to 2014. The objective is to stimulate private sector investment by providing support for projects that offer significant potential for long term economic growth and the creation of additional sustainable private sector jobs. The fund will particularly help support those areas and communities that are currently dependent on the public sector to make the transition to private sector led growth and prosperity.
- The Government has committed to establishing a Big Society Bank to grow the social investment market and help social enterprises, charities and voluntary organisations access finance. The BSB will be funded with money from dormant accounts available for spending in England and, in order to comply with Dormant Accounts legislation, will act as a social investment wholesaler investing in civil society through intermediary organisations. Government is aiming to have some functions of a Big Society Bank in place by Spring 2011 and be ready to make initial investments from early summer 2011.
- BIS’ online newsroom contains the latest press notices, speeches, as well as video and images for download. It also features an up to date list of BIS press office contacts. See http://www.bis.gov.uk/newsroom for more information.
Notes to Editors
BIS Press Office