Using the EFG scheme to buy a business
My previous blogs on the Enterprise Finance Guarantee (EFG) scheme created significant interest. The EFG has been a very emotive subject for the UK public, with many people feeling that the level of lending is insufficient. Much of the public anger is aimed towards the ‘bailed out’ banks (presumably because the tax payer feels they are a ‘part owner’).
I believe the initial publicity of the scheme led to unfair expectations being placed on the banks. Some individuals appeared to think that the EFG represented free money for businesses. However I can not defend the lengthy credit application process seen at certain banks, which can lead to unfulfilled orders, aborted transactions and in extreme cases business failure.
Despite the unfavourable public opinion, the intention of the EFG is very honourable. Not everybody is aware that EFG loans can be used to acquire businesses – whether this involves a share acquisition or a purchase of trade & assets. The criteria applied by banks is simple – it is consistent with their normal commercial terms (i.e. the existence of a government guarantee does not mean that sensible lending criteria are discarded).
Not all lenders are willing to use the EFG to acquire existing businesses. Please let me know if you would like details of those that currently do offer this facility.
Julian Dobbin is a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Julian you can call him on 01908 605552.
Date: 17th November, 2009
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