Government to guarantee loans to SMEs

Small businesses will be able to access loans at a 1% discount to banks' ordinary rates. Although business group say more needs to be done.

by Emma Haslett
Last Updated: 06 Nov 2012
By now, most of the contents of tomorrow’s Budget has been leaked, so it’s no surprise that we’ve already seen details of the Government’s National Loan Guarantee Scheme, which will apparently provide small businesses with loans at a 1% discount to banks’ normal rates. Good news, surely, considering the majority of SMEs aren’t even trying to borrow money because it’s far too expensive. But business groups are cautious, pointing out that while it’s a step forward, the NLGS (as it’s known to its friends) isn’t a ‘panacea’.

The Government will apparently guarantee about £20bn of loans over two years to businesses with a turnover of up to £50m. The first tranche, which starts tomorrow morning, will be about £5bn. RBS and Barclays are expected to be the heaviest users of the scheme, lending about £1.5bn each, while Lloyds says it’ll offer £1bn and Santander just under £500m. Notable for its absence is HSBC, which said because it uses deposits to fund its loans (rather than money borrowed on the wholesale market), it would rather keep doing that than start borrowing from other banks. Which will no doubt go down brilliantly with its small business customers…

George Osborne said the scheme would form one of the centerpieces of the Government’s strategy to support SMEs. ‘The Government promised to help small businesses get access to lower interest rates. Today, we deliver on that promise with a nationwide scheme. 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 interest rates onto businesses.’ Quite.

But business organisations don’t seem entirely convinced. John Longworth, the director of the British Chambers of Commerce, reckons the Government needs to find more innovative ways to provide access to finance. ‘While credit easing is a step in the right direction, it is not a panacea for all the problems faced by businesses trying to access finance’.

There’s also the worry that the tiniest businesses seeking small amounts of cash won’t be helped at all: while RBS said it would use the NLGS for loans as low as £1,000, others said the admin costs would be too high to offer loans that small. ‘It will not help the smaller, younger, and high-growth firms that have trouble getting credit in the first place,’ he said. So the results of this latest wizard wheeze remain to be seen…

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