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UK Small business Loan Plan

Written By: admin on January 14, 2009 One Comment

Executive summary from BBC News

A plot to guarantee up to £20bn of loans to small businesses to help them survive the economic downturn has been unveiled by the government.

In return for a fee, the state will, in effect, insure banks against companies defaulting on loan repayments.

But there are concerns that £20bn will not be enough to get the banks lending sufficient funds to help businesses get access to much needed cash.

The Conservatives want ministers to go further and underwrite £50bn of loans.

Lord Mandelson said the proposals would target “genuine business needs”.

New loans

Central to the plot is a £10bn Working Capital Scheme designed to help banks lend much needed capital to small businesses.

The government will provide guarantees on 50% of £20bn small term loans to businesses with a turnover of up to £500m.

“The £10bn injection to banks represents a guarantee to enable them to free up working capital to sustain exisiting loans and make new ones,” Lord Mandelson said.

Bank lending would be targeted at “innovative, viable and growing [companies] that are finding it hard to access working capital”, he added.

The government is also setting up an Enterprise Guarantee Scheme as part of the support package. The banks must certify that these loans are in addition to loans that they would otherwise make.

Finally, the government is setting up a £75m Capital for Enterprise Fund specifically for businesses with high levels of debt that have “exhausted traditional forms of financing”, said Lord Mandelson.

Lord Mandelson also said that the government was in discussions with credit insurance providers about providing similar guarantees on money owed by small businesses to their suppliers.

“Businesses are critically in need of cash-flow. “A government promise to guarantee individual loans to businesses is not only sensible, it’s crucial.”

I would be a lot more pleased if the scheme was a lot larger,” said Jon Moulton, managing partner of private equity firm Alchemy Partners.

‘Expensive mistake’

Liberal Democrat Treasury spokesman Vince Cable said: “The government should stop messing around with stunts and wheezes and ensure that the banks owned or part-owned by taxpayers operate as state banks maintaining lending for the economy.”

Business failures

The British Bankers Association, which represents the banks, said its latest data showed that in October and November, growth in lending to small businesses slowed towards the end of 2008, though it remained above 2007 levels.