Treasury to launch £20bn small businesses scheme
Businesses with a turnover of less than £50m will receive cheaper loans under a government scheme which guarantees £20bn of loans from major high street banks.
Barclays, the Royal Bank of Scotland, Lloyds and the National Loan Guarantee Scheme (NLGS) have already signed up to the scheme, which will see up to £20bn of guarantees on unsecured borrowing.
This will mean cheaper loans for small businesses, as the banks will then pass on the benefit they receive from the guarantees to companies with a turnover of less than £50m.
The scheme has been designed to stimulate growth by encouraging new lending among banks, which say that they have suffered from high credit costs and lack of availabilty of credit due to the financial crisis.
Treasury officials said the scheme had been made possible by low interest rates which can be passed on.
Chancellor George Osborne said: “It’s only because we’ve earned credibility with our deficit reduction plan that we have low interest rates, and it’s only because of this scheme that we can pass the benefits of those low rates onto businesses.”
Discount
Small businesses taking out an NLGS loan will receive a discount of 1 per cent compared to the interest rate they would otherwise have been asked to pay.
The Treasury will decide the allocation of guarantees to banks depending on their market share, gross and net lending, track record of lending to small businesses and capacity to lend under the scheme.
They will guarantee around £5bn at first, with a minimum allocation of £100m per bank. Subsequent guarantees, which are being administered by the UK Debt Management Office, will be determined by demand.
The British Bankers’ Association said Banks “recognise the part they have to play in supporting UK economy.” The Association added: “A number of UK banks are participating in the scheme to help their customers by offering them cheaper loans – this is about encouraging growth and new lending.”
Manufacturers’ organisation, EEF, welcomed the “ambitious” scheme. Director of Policy Steve Radley added: “Government needs to undertake a major communications exercise, working with the banks at the branch level, to ensure that they are properly equipped to offer the new scheme to the smaller firms that need it.”
