SMEs complain about Enterprise Finance Guarantee charges

The Government has pledged to charge a premium of 2pc for the Enterprise Finance Guarantee (EFG) after the EC state aid rules expired.

The rate charge will affect about 5,800 loans that already exist that were drawn up for companies and an additional 3,000 loans that were previously approved by the Business Department.

The news follows revelations that were published in The Daily Telegraph that banks have been able to get about £6m in fees by making SMEs pay inflated rates in order to get access to the scheme which is valued at £1.3b

Research discovered that the companies that chose to drawn down their loan agreements were forced to pay about 1.8p% of the loan in administration fees and also accept an increased rate of interest set at 6.75%.

In response SME groups called for the mater to be investigated with FSB, member Stephen Alambritis commenting that the scheme should be the cheapest option for businesses and that the government needs to investigate the charges.

The new increase in the premium will add an increased cost to obtaining a loan for a businesses, which has been extended up until 2011 with £500m set aside for guarantees.

A spokesman for the Department of Business stated that the discounted premium was only temporary, and could only be offered during the time period when it was still uncertain about how much it would cost for SMEs to get financing.  According to the spokesman the government always planned to return the premium back up from January of 2010.