£20bn Cheap Lending for SMEs Begins Next Week

A scheme to boost the supply of bank lending to small companies by £20bn will be launched early next week, after the European Commission approved the government plan.
Chancellor George Osborne unveiled the National Loans Guarantee Scheme last November under which the government will guarantee bank lending to lower the cost of borrowing for small businesses.
‘Now that state aid approval has been granted, we are on track to launch the scheme on Monday or Tuesday next week,’ a Treasury spokesman said.
The National Loan Guarantee Scheme will lower the cost of bank loans for smaller businesses with turnover of up to £50 million. In many cases, say the Treasury, the scheme will lead to a reduction in the cost of business loans of up to 1 percentage point.
In addition, the government will also help businesses raise funds from non-bank sources by making available £1bn through a Business Finance Partnership, to invest in mid-sized businesses and SMEs in the UK. This will initially focus on co-investment with the private sector through loan funds.
John Walker, the Federation of Small Businesses’ national chairman, welcomed the news: ‘We are pleased that this scheme is finally being made available to small firms as recent FSB research indicated that around 60% of firms think that credit is unaffordable.
‘Government and the banks now need to ensure that branch staff and businesses have clear information on how the scheme will work, so that small firms that need finance can access it through the national loan guarantee.’
Banks’ access to the scheme will be based on their proven record of lending to smaller businesses, providing the banks with an incentive to increase lending. The Bank of England, acting as the Treasury’s agent, will collect lending data to support this.
Participating banks will retain the full credit risk of the loans they make under the scheme.
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