The charges on government-backed loans to small businesses have increased by a third following the end of a deal with the European Commission, it has been reported.
According to The Telegraph, the premium charged by the government for guaranteeing loans through its Enterprise Finance Guarantee (EFG) scheme has risen to 2% of the loan value, following the expiration of an 11-month discount agreed with the European Commission on January 1 2010.
Companies receiving funding through the EFG now face paying higher interest rates and charges on the loans.
The price hike will affect almost 6,000 small and medium-sized businesses that have taken out loans through the EFG, along with more than 3,000 whose loans have already been approved by the Department for Business, Innovation and Skills (BIS), the report said.
A spokesperson for BIS told the paper: “The temporarily discounted premium of 1.5% was offered at a time when there was a significant level of uncertainty about the likely cost of finance for small and medium enterprises.
“The premium was always intended to return to 2% from January 2010 and this has not deterred enterprises from taking up EFG loans in 2009.”
The news follows last month’s report that the banks have made nearly £6m in fees by charging small businesses inflated rates to access the £1.3bn scheme. Small firms were typically found to be paying 1.8% of the loan value in administration fees and an interest rate of 6.75%, both exceeding standard industry levels.
Stephen Alambritis, national chairman of the Federation of Small Businesses (FSB), argued that the scheme should be “the cheapest in town”.
“The government should look at these charges and bring them in line with the charges imposed by the partially state-owned banks,” he said.
In December's pre-Budget report, chancellor Alistair Darling allocated a further £500m in guarantees to the EFG and extended the scheme, which was due to end in March 2010, for another 12 months.
© Crimson Business Ltd. 2010