Fears over fall in borrowing by small firms

LENDING under the Government's small business lending flagship the Enterprise Finance Guarantee (EFG) scheme has fallen a further eight per cent in Yorkshire in the last quarter, according to research conducted by Aldermore, the new British bank.

Lending to Yorkshire SMEs (small and medium-sized businesses) under the EFG scheme dropped from 12.01m in the second quarter of 2010 to 11m in the third quarter, according to Aldermore's research.

According to Aldermore, one worrying aspect about the scheme is that it is failing to get funding to SMEs in those regions of the UK that are most exposed to public sector spending cuts.

This includes Yorkshire, where 28.6 per cent of the workforce is in public sector jobs, according to ONS figures.

Dave Jones, senior regional managing director at Aldermore Invoice Finance, said: "With so many SMEs unable to secure credit from big banks, the continuing decline in lending through the EFG scheme needs to be reversed.

"It is particularly worrying that certain regional economies are suffering some of the greatest falls in funding. These areas are amongst those with the highest reliance on public sector jobs in the UK.

"EFG is a great scheme in theory – it should be an excellent way of making extra capital available to fund small businesses. Unfortunately, amounts actually lent under the scheme have declined over the last year."

Mr Jones added: "If the Government were willing to underwrite a larger proportion of the EFG loans, then more loans might be written."

He added that the Government could also consider reducing the fees that small businesses have to pay for using the scheme to encourage more applications.