Mr Fallon has written to the bosses of Barclays, Royal Bank of Scotland, Lloyds, HSBC and Santander demanding that they address the “deeply concerning” decline of the Enterprise Finance Guarantee, reports The Telegraph.
The EFG sees the Government act as guarantor on 75pc of individual bank loans of between £1,000 and £1m and is designed to help small businesses that have viable business proposals but no security to offer against a loan.
Mr Fallon questioned why lending through the EFG has collapsed despite government moves to make it more attractive to lenders and allowing a broader range of small companies to qualify.
“Following the changes we have made, I expect to see an increase in EFG utilisation during the remainder of this year and next – and would welcome an assurance you have plans in place to contribute to this,” he told the banks’ chief executives.
“We have always reported on usage of EFG across all banks, anonymised, but if uptake does not increase we will come under increasing pressure to publicise individual banks’ figures.”
Lending through the EFG has fallen by 65pc since its peak in 2009, with just £70.8m lent through it in the second quarter of this year. Experts say lenders had been put off by the fact that there is a limit to how much of banks’ total loan books are covered by the scheme.
The Government attempted to revive the scheme by covering 20pc of banks’ loan portfolios made through the EFG, up from 13pc, and by allowing companies with sales of up to £41m, up from a £25m threshold, to qualify. However, this has done little to arrest the decline.
Mr Fallon questioned whether there was a “willingness to both promote the scheme and to use it when it is appropriate to do so” among lenders.
“Additionally, I would welcome reassurances that staff involved in the credit-sanctioning process have a sufficient level of knowledge of EFG and are fully aware of the changes,” he said.