Loan size concentration under the UK Enterprise Finance Guarantee Scheme and SME access to Finance

Credit rationing is most severe for young and small firms. Public loan guarantee schemes are explicitly designed to increase the supply of loans to these types of firms. In this article, we explore how the EFG scheme evolved through the lens concentration of the cash volume of loans issued. Adopting the Herfindahl–Hirschman Index (HHI), we find that loan size concentration had increased substantially over time, and there was a smaller number of larger loan sizes issued. In short, we posit that it had less relevance to the most acutely rationed small firms and had transitioned into a less targeted scheme. However, we observe different lending behaviors for lenders of different sizes, as smaller lenders became more focused and targeted in their lending over time. It is evident that increasing the diversity of lenders for such schemes would reinforce the effectiveness and relevance of the scheme.