A £40 billion National Loan Guarantee Scheme will be launched within months to provide cheaper government-backed loans to cash-strapped SMEs, the Chancellor George Osborne has announced.
A £40 billion scheme will be launched within months to provide cheaper government-backed loans to cash-strapped small and medium-sized enterprises (SMEs), the Chancellor George Osborne has announced.
Osborne today used his Autumn Statement to Parliament to announce details of the National Loan Guarantee Scheme which was flagged earlier this year and had been referred to as a credit easing scheme. The chancellor says an initial £20 billion will be made available in the next two years through the scheme, but more than double that amount could be available in the future.
Funding for the scheme has been made available through a £40 billion reduction to the Bank of England’s Asset Purchase Facility, which was awarded by the previous Labour government to enable the central bank to buy business loans.
Under the scheme, SMEs will be able to take advantage of lower interest rates for business loans, most likely 1 per cent less than the standard business rate, on the back of the government’s ability to secure cheaper credit. The loans will be made available through the UK’s high street banks in a similar manner to the European Investment Bank’s Loans for SMEs scheme.
The government scheme will be available to SMEs with turnover of less than £50 million and will be running in the coming months.
Osborne explains, ‘It will work on the simple principle that we use the hard-won low interest rates that the government can borrow at, to reduce the interest rates that small businesses can borrow at.
‘We’re using the credibility we’ve earned in the international markets to help our domestic economy. New loans and overdrafts to businesses with a turnover of less than £50 million will be eligible for the scheme – so it stays focussed on smaller companies.’
Osborne announced that the Enterprise Finance Guarantee scheme will be expanded to include businesses with annual turnovers of up to £44 million and accrediting new lenders like Metro Bank.
A new £1 billion Business Finance Partnership has also been announced, which is aimed at Britain’s mid-sized companies. The programme will see the government invest in partnership with other investors like pension funds and insurance companies in funds that lend directly to mid-sized businesses.
‘It will give these mid-cap companies a new source of investment outside the traditional banks,’ Osborne says. ‘If the Business Finance Partnership takes off, I stand ready to increase its size. And we will develop further partnerships ideas and ideas for new bond issuance to help Britain’s small and medium-sized firms.
‘No government has attempted anything as ambitious as this before. We will not get every detail perfect first time round – but we don’t want to make the best the enemy of the good. With the strain on the financial system increasing, the important thing is to get credit flowing to Britain’s small businesses.’