Enterprise Finance Guarantee
EFG LOAN SURVEY BELOW: TEST WHAT YOU HAVE BEEN SOLD AGAINST
SAMPLE COMPLAINANT ANSWERS!
The EFG loan is complicated by the fact that the banks have been mis-selling it.
How was your EFG loan sold to you? Please let us know at firstname.lastname@example.org
The Government Guarantee
By providing lenders with a Government-backed guarantee for 75% of the loan value, EFG facilitates lending that would otherwise not take place. EFG is intended to support lending to businesses which can ultimately repay their loan in full. The guarantee provides protection to the lender in the event of default by the borrower – it is not an insurance for the borrower in the event of their inability to repay the loan.
Anyone is free to speculate as to why the department of BIS has written this in BOLD. Was it because that is exactly how the EFG loan was being sold by banks and BIS wanted to ensure that it stopped? Or was it because the EFG loan was being sold properly and BIS wanted to ensure that it remained so? The answer is obvious one would imagine!
QUESTIONNAIRE / SURVEY WITH SAMPLE ANSWERS TO ASSIST YOU TO EVALUATE YOUR EFG LOAN:
The EFG scheme as explained to me on 8/7/14 by the Director of Lending for the British Business Bank, a department of BIS:
- An EFG loan is solely for businesses without assets that would secure the same loan through a standard secured loan scheme.
- A business that has sufficient assets to secure a standard loan, is barred from receiving an EFG loan.
- Businesses with an EFG loan are 100% liable for the repayment of the loan and the loan can be secured by way of PG or any other way that the bank wants to secure it, in the absence of assets to do so.
- IMPORTANT – the use of PG security does not extend to the family home. i.e. the bank cannot call in the PG, force the sale of the family home and then secure proceeds of the sale to repay the EFG loan. Furthermore, even if the family home is sold voluntarily at any time, proceeds from the sale cannot be required by the bank to repay the EFG loan.
- The Government agrees with the banks that it will underwrite up to 75% of the outstanding balance of an EFG loan in the following circumstances:
- The bank has completed its normal procedures to recover 100% of the outstanding EFG loan and has not succeeded in doing so. This includes calling in PG, court action etc.
- The bank provides proof that it pursued 100% of the debt and failed and the Government provides the bank with whatever remains outstanding up to 75% of the loan value at default.
- The government levies a 2% per annum charge (to the borrower) through the lending bank on the total loan to be repaid in the year of the charge.
- The 2% charge is a levy not an insurance.
- The 2% levy is described as a means of unlocking the EFG loan i.e. agree to pay the 2% levy and you can have the EFG loan.
- The benefit to the borrower is that without an EFG loan they would be unable to borrow from the bank.
- The 2% levy is therefore seen by the government as very reasonable. It is placed into an EFG holding fund and used to pay banks for those EFG loans that default and when full recovery by the bank fails.
- The EFG loan is principally to assist a business to expand or to restructure its finances by mutual consent.
- The EFG loan is not a stick/tool with which a bank can reduce a business overdraft by drawing down the EFG loan and retaining the monies, contrary to the wishes of the business,
- An EFG loan has to make sense for the business and the bank and its purpose must be mutually agreed.
- If a PG is called in and a CCJ and repayment order issued at court, the bank cannot claim the 75% from the government (but this is a grey area) i.e:
- If the court award is £10 per month for a £100,000 debt, the debt will never be cleared, so according to the Director for lensing, the bank could apply for £75% from the government.
- However if the court repayment is for £500 per month from a £24,000 EFG liability and the person pays monthly, the bank will get its money within 4 years, so should not apply to the government for 75%.
- Grey area – There is a case where the court has awarded payment of £500pm on circa £27,000 and it is being paid, but the bank has also had the 75% £from the government. The complainant states that the bank has not informed him of this and the government states that although it has paid the 75%, the bank should repay the government as and when the repayments from the PG holder double up on the banks claimed 75% from the government.
Clearly this is unworkable in practice and we are establishing with Berg what the situation really is in law. It would appear that in the absense of any strict protocol, the bank will end up with double money and the government will have to rely on the bank’s honesty to repay what it has claimed!
EFG LOAN SURVEY
Please provide a brief synopsis of your case, by completing the survey below:
I have attempted to assist with headings and example answers taken from complaints we have received to date:
- Your name, business and contact telephone number or you wish to remain anonymous?
- E.g. Andy Keats, NSB Ltd, Mobile 07787 800 436 (Please be willing to stand up and be counted, but we totally understand if there are underlying reasons why you cannot).
- E.g. I wish to remain anonymous for now.
- E.g. I will give my details if the Treasury Select Committee specifically request that I do so.
- Please confirm that what you say in this survey is True?
- E.g. I confirm that my answers to this EFG survey are true.
- Regarding your EFG loan – Did you really want a loan of any sort?
- E.g. Yes to start a new venture (coffee shop)
- E.g. No we did not want a loan, it was forced on us or we would have our overdraft facility taken away completely.
- E.g. No we had an overdraft facility that gave us flexibility, the loan was forced on us because the bank insisted that it was reducing my overdraft.
- E.g. No the loan, paid off the existing overdraft contrary to our wishes, which reduced cashflow, which caused trading difficulties and the EFG cost more than the original overdraft.
- E.g. No the bank simply drew down the EFG loan and kept it. The effect was that my overdraft was smaller and therefore my ability to purchase materials for contracts reduced, so I could not take on additional work. We were forced to downsize the business because of it.
- E.g. Yes when the bank suggested it, it sounded great, we could have a loan to expand our business and we were only liable for 25% repayment if we couldn’t repay it.
- Did the bank approach to to have the EFG loan or did you approach the bank for a loan?
- E.g. The bank approached me with the idea that we should take an EFG loan to reduce our overdraft / expand our business.
- E.g. The bank approaced us informing us that we needed a loan and then decided the best loan for us was an EFG loan.
- E.g. We approached the bank and asked for a loan. The EFG was agreed to be the best by the bank, after we understood its terms as described to us by the bank at the time.
- What bank provided the EFG loan?
- E.g. BS, Lloyds, Clydesdale, Barclays etc.
- When did you receive your EFG loan?
- E.g. January 2010
- How much was the EFL loan for and the terms?
- E.g. 100,000, over 5 years @ 2.5% above base rate i.e. 3% + 2% Annual Insurance premium (of outstanding loan at the time) covering 75% of the loan at default.
- Was there an arrangement fee and how much?
- E.g. Yes 1% of loan value i.e. £1,000
- E.g. No I don’t think so
- E.g. No there was not
- When did you default on your EFG loan and what was the reason for default?
- E.g. July 2012 – Business collapsed due to lack of cashflow,
- E.G. July 2012 – Business stopped trading because custom dried up etc.
- How much of the EFG remained when you defaulted and could no longer pay it?
- E.g. £50,000 = 50% of original £100,000
- Did you request an EFG loan or did the bank suggest / require you to have an EFG loan?
- E.g. the bank told me I had to take an EFG loan……
- E.g. the bank discussed the various loan options available to me and we decided together that the EFG loan wasthe best solution.
- E.g. the bank persuaded me that the EFG loan was best for me.
- How did the bank persuade you that an EFG loan was for you?
- E.g. because it would reduce our liability to the bank of 100% of our existing overdraft to just 25% of the EFG loan.
- E.g. because a new venture is more risky that an established business, so an EFG loan enabled us to borrow, knowing that we were only 25% liable for the remaining debt, if everything went wrong later.
- E.g. If we did not accept it, he would call in our overdraft and that would definitely put us under!
- E.g. To break all existing loan aggreements and to consolidate everything under one EFL loan (with 2% insurance) which we would then only be 25% liable for. It made sense.
- Why an EFG loan rather than any other type of loan?
- E.g. We had no assets to secure another loan type
- E.g. We were told that it would reduce our existing Personal Guarantee liability i.e. we were only responsible for 25% of the EFG loan
- E.g. We were told that ….
- Decsribe in your own words (less than 100 if possible) what the bank stated to you and name the manager if you know him?
- E.g. My business Manager Mr Smith, told me that the business must reduce its overdraft with an EFG loan. He said EFG was more expensive than a normal loan, but as we were only liable for 25% of any outstanding balance on default, that was good because he appreciated that reducing our overdraft could cause cashflow problems, (which may lead to failure). He said his hands were tied and if we did not accept the loan, he would call in all the overdraft, which would put us out of business. Our O/D limit was never exceeded. We were trading normally. (99 words)
- Did you think the EFG loan was expensive / reasonable / in line with other loan options / you had no choice it was either EFG laon or nothing?
- E.g It was expensive because of the 2% Insurance premium, but it was worth it because it reduced our liability.
- E.g.It was reasonable rate and it just seemed the best option at the time.
- What were you told about your liabilities under the EFG loan?
- E.g. We were 100% liable
- What were you told about the 2% per annum premium?
- E.g. It was an insurance premium to cover the 75% Government guarantee in case we defaulted.
- E.g. It was a government levy, like a fee to enable the loan to take place.
- E.g. It was a bank charge and we had no idea what it was for.
- What security were you required to provide against the EFG loan?
- E.g. Personal Guarantee for 100% of the loan
- E.g. Personal Guarantee for 25% of the loan
- E.g. Other security – What?
- E.g. No security was required
- Did you have tangible security (not personal guarantee) that would allow you choice of loans?
- E.g. Yes but when I put in my asset statement to the bank, the manager told me to remove some assets, delete my original email and send a new asset statement showing I had less assets than the amount that would prevent me from receiving the EFG loan.
- E.g. Yes and we had to provide 100% security against our rental homes valued at £XXX, XX
- E.g. Yes we supplied a second charge over our home valued at £xxx,xx for 100% / 25%
- E.g. No we did not have any assets that we could put as security against another type of loan
- If security was 100% personal Guarantee, what was the reason given for the 100% PG?
- E.g. 100% PG was required in case we did anything fraudulant, but only 25% would ever be ulilised.
- E.g. Once the loan was drawn down my existing PG would be reduced to 25% of the EFG loan (it never was).
- E.g. A 100% PG was required as an technicality of the EFG scheme, because all loans need to be covered by some security or the banks systems won’t process it.
- E.g. My existing bank PG covered the EFG loan, but I was told that I was only liable for
- What were you actually told about the situation where default occurred?
- E.g. Provided we had continued to pay the 2% Insurance premium, we would only be liable for 25% of the outstanding premium.
- E.g. the bank would work out what 25% of the remaining premium was and require it from us. It would even allow us to pay over time to make it easier.
- E.g. the bank would get 75% from the government under the terms of the 2% insurance premium and we would own the remainder.
- What happened when default actually occurred?
- E.g the bank required us to pay 100% of the outstanding loan at the time.
- E.g. The bank required us to pay 100% of the outstanding loan at the time and denied ever saying that we were only liable for 25%.
- E.g. the bank claimed 25% and released us from any obligation for the 75%
- At default, did the bank ever threaten that it would or could repossess / force sale of / take the proceeds of the sale of your family home?
- E.g. Yes the bank and the debt collectors borth threatened that if we did not pay up 100% we would
- Did you know that under no circumstances could your family home, or proceeds from the sale of your family home, ever be used to repay the EFG loan?
- E.g. Yes……. (The bank told us)
- E.g. Yes the bank told us, but later it told us different
- E.g. No ………. (it was never mentioned)
- E.g. No we were tod the opposite by the bank / debt collectors
- Had you known that the full 100% repayment was required at default would you have taken an EFG loan?
- E.g. Yes because I had, no assets so no option.
- E.g. No becausse had I known the truth it would not have been a good deal.
- E.g. I never wanted a loan in the first place, I certainly would not have wanted a loan that cost me more than a normal loan and that I was still liable for.
- What evidence can you produce of what you say?
- E.g. EFG Loan docs,
- E.g. Email / letter correspondence between you and the bank,
- E.g. Solicitors correspondence from bank and or your own,
- E.g. Court papers,
- E.g. recorded conversations between you and bank representatives etc?
- Any other comments:
- Please keep these brief i.e. to under 100 words if possible.
Copy and complete the survey as a word document and send it to SBCB by emailing email@example.com