The government has pledged to help small business survive the recession by guaranteeing up to £20bn of loans.
The government will encourage banks to lend struggling businesses some much needed cash, and in return for a fee, will insure those banks against companies that are unable to make their loan repayments.
The move is part of a support package designed to address the cash flow, credit and investment needs of small and medium businesses. Business secretary Peter Mandelson said it was crucial the government act immediately to help support struggling businesses he described as ‘the lifeblood of the economy’.
“We know that some companies are struggling to secure the finance they need, not because of any failure in their business but due to the tougher credit conditions,” he said. “That is why we have designed a package of measures addressing different forms of credit and providing real help for businesses.”
However, concerns have been raised as to whether the measures will be enough to push banks to lend sufficient funds to businesses. David Grant, head UK business mortgages at Christie + Co, said he thought ‘the devil will be in the detail.’
“It should help businesses in the hospitality sector looking to protect or expand their operations and those looking to enter the sector. However, much will depend on whether the banks will relax their current strict lending criteria to small firms in the knowledge that 75 per cent of a loan will now be guaranteed by the government.”
The government measures include:
• A £10bn Working Capital Scheme, securing up to £20bn of short term bank lending to companies with a turnover of up to £500m.
• An Enterprise Finance Guarantee Scheme, securing up to £1.3bn of additional bank loans to small firms with a turnover of up to £25m.
• A £75m Capital for Enterprise Fund (£50m from Government augmented by £25m from the banks) to invest in small businesses that need equity.