Mis-sold Enterprise Finance Guarantee loans: Avenues for redress

Since the launch of the Enterprise Finance Guarantee (EFG) loan in 2009, over £3.2billion worth of government-backed finance has been provided to more than 30,000 small to medium enterprises (SMEs). Many of these loans have been mis-sold by banks, resulting in SMEs being subject to onerous charges or unexpected liabilities, which could otherwise have been avoided.

What is an EFG Loan?

The EFG scheme was launched in 2009 by the Department for Business, Energy and Industrial Strategy under the guise of the British Business Bank Plc, with the aim of increasing the supply of credit to SMEs, whilst simultaneously protecting banks from the risk of loan default. EFG loans are available for values from £1,000 to £1.2million, with finance terms of between 3 months and 10 years.

An eligible SME with a sound borrowing proposal but insufficient security to otherwise obtain a bank loan would be eligible to apply for support under the scheme. Under the terms of the EFG, the lender is provided with a government-backed guarantee of up to 75% against the value of the loan. The SME would remain liable to repay the entirety of the loan and pay a 2% annual guarantee fee to the Government; with the guarantee acting simply as a method of mitigating the risk of default for lenders and encouraging banks to lend.

EFG loans are offered by over 40 accredited lenders, including Barclays, Clydesdale, HSBC, Lloyds, TSBM, RBS, NatWest, and Bank of Scotland.

Have I been mis-sold an EFG loan?

EFG loans have been mis-sold by banks in two main ways, namely:

1.Many banks failed to explain to the customer that they are liable to repay 100% of the EFG loan, and not just the 25% not backed by government guarantee (thus leaving borrowers with a liability far greater than they expected);

2.Despite having security for 75% of the loan from the Government, many banks obtained charges against customers’ private properties, and also personal guarantees, in direct contravention of the terms of the EFG scheme.

If you were not told that you had to repay the entirety of your EFG loan, and were under the impression that you were only liable to repay the 25% not backed by Government guarantee, you may have been mis-sold the loan. Equally, if you have taken out an EFG loan for your SME, and the bank has insisted on a charge against your personal property, or a personal guarantee from you or someone else, you may also have been mis-sold the loan.

What are my options?

For claims below a maximum threshold of £350,000, a complaint can be made to the Financial Ombudsman Service (FOS). However, the majority of claims will be of significantly larger value than the maximum threshold and will therefore fall outside of the remit of the FOS. Further, since 2015 RBS has had an ‘independent’ review scheme to deal with mis-selling claims, however the partisan nature of this review scheme may not make it the best option for clients seeking redress.

Towards the end of this year, an independent Banking Dispute Resolution Scheme (BDRS) is set to start offering an alternative route to redress for businesses that have fallen victim to banking misconduct and financial mis-selling. The BDRS, however, relies on voluntary compliance by the banks, and is as yet untested as to its power in respect of claims for redress.

Alternately, a claim can be issued at court and the matter dealt with by litigation. Court proceedings can be both risky and expensive for businesses, due to the fact that banks often have sophisticated financial and legal resources. However, a simultaneous approach of both litigation and review through the dispute resolution scheme would offer significant financial advantages for SMEs affected by EFG mis-selling.

It is important to note that to preserve the right to litigation and avoid any issues of limitation, any claim must be brought within 6 years from the date of the mis-selling of the EFG loan (or the date the EFG loan was first offered), or within 3 years from the date of knowledge of the mis-sold loan. The time limits are strict and it is therefore important to obtain independent legal advice as soon as possible. If these time limits are missed, your claim or complaint may become ‘time-barred’ and you may lose the right to recover your losses.

How can Ellis Jones help you?

Our specialist Banking and Finance Litigation team has substantial experience in dealing with claims in this area and we have
recovered in excess of £55 million from UK Banks for our clients since 2012. We may also act on a No Win No Fee basis, subject to eligibility and initial assessment of your claim.

If you wish to discuss a potential claim or complaint, please contact William Fox Bregman, Partner and Head of the Banking and Finance Litigation Department, on 01202 525333 or send an email enquiry to discuss your claim.