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Treasury rolls out £20bn loan guarantee scheme

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20th Mar 2012
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Just hours before the 2012 Budget announcement, the government has finally launched the National Loan Guarantee Scheme (NLGS) offering cheaper credit to small companies.

Businesses with a turnover below £50m will be able to access the funding, with no minimum loan size, from four of the UK’s biggest banks that have signed up to the government-backed initiative.

Barclays, Santander, Lloyds Banking Group and RBS will make £5bn of funds available in the first tranche and a further £15bn in six-monthly intervals over the next two years.

HSBC has not signed up to the scheme as it has cheaper access to funding through its large base of retail deposits.

Businesses that take out an NLGS loan will receive a discount of 1% compared to the interest rate that they would otherwise have received outside the scheme.

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."

RBS will provide loans for as little as £1,000, while Barclays is set to offer the one percentage point discount through upfront cash rather than a lower rate.

The banks will retain the credit risk and therefore their usual lending and credit parameters will apply. In addition to the loan discount, banks will pay the government’s borrowing cost of around 50 basis points above Libor together with a minimum fee of one percentage point.

Aldermore has also agreed, in principle, to join the scheme.

The ACCA welcomed the news, but highlighted the fact that the scheme does not apply to overdrafts, which are often used by SMEs for managing their finances.  Andrew Leck, head of ACCA UK, said: “The simple fact is that SMEs are still unable to invest the amounts needed for a sustainable recovery and growth is by no means assured in 2012. ACCA is well aware of the commercial barriers SMEs face and that a number of linked initiatives are required to improve investment for them.”

However, Leck added: “Our analysis suggests that a significant number of businesses – up to 40,000 – could potentially be encouraged to apply for loans who otherwise would have not; some more, maybe 5,000 at most, that would previously have been offered a very high interest rate and rejected the loan altogether might now be offered a more reasonable rate.”

Debbie Bell, regional director at ABN AMRO Commercial Finance, was less welcoming of the scheme and its timing: “We’re not convinced that it’s going to make a lot of difference.” Bell referenced the recent Breedon report, which was commissioned by Vince Cable to look at financing options for businesses. In particular it made the point that applications for bank funding remained very weak and that only 9% of SMEs sought finance in 2011.

“We’re not sure that an adjustment to pricing of 1% is going to make a big difference - the banks are still going to have the same requirement in terms of wanting collateral to back up those facilities.”

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Replies (4)

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Nigel Harris
By Nigel Harris
20th Mar 2012 14:21

Who needs this?

My prediction that the Budget will be all hot air and no substance is borne out by this latest announcement. Ask any local business bank manager what the problem with lending to SMEs is, and interest rates is NOT it! Who in Government really thinks interest rates are the problem?

Banks still struggle to lend because most applications fail to meet their criteria. Or put another way, most SME's can't handle any (more) borrowing, whatever the interest rate. This new scheme will change nothing.

But it does make them look like they're trying, so it's a good headline in the absence of any really good news for business!

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Mark Lee headshot 2023
By Mark Lee
21st Mar 2012 09:56

"Businesses with a turnover below £50m "

Only using the strict EU definition of 'small' companies could anyone reconcile the size of businesses referenced in the announcement.

I do wonder whether ministers and/or civil servants do it deliberately. The mainstream media parrot references to 'small' companies and the man in the street assumes it covers the smallest companies - micros with turnover below £100k or even upto £500k or £1m.

So it seems to be an annoucement helping the latter whereas in reality it only helps very large companies that happen to satisfy the technical definition of 'small'.

Mark

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By The Black Knight
21st Mar 2012 12:51

deposit

When cash flow has dried up there is no deposit and this is where this idea fails.

The reserves these firms had were used up first especially with micros as they would not have understood investing and borrowing while you still had some cash to assist.

I rather think that is the point, a political statement that sounds good but is practically no use.

Borrowing for the sake of borrowing (whilst a popular idea in government and banking) is not a solution to any ones problems.......The missing element is often a plan.

We really need a government that understands some of the basics of business.

Trouble is our government has as much power and use as a parish council, we now have to follow the European model of disaster.

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By jackie67
05th Apr 2012 04:00

This is overdue!

Finally.. this is something which I think will really help stimulate business and get things moving. As we all know the banks have become so reluctant to lend to people - I distinctly remember seeing Barclays defending their reputation around lending to businesses saying how they were providing more loans and credit.

It will be good to actually see this in action as often these schemes are devised but the results are dissapointing.

Just my opinions, of course!

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