New government package to unblock lending and investment for smaller businesses
14 01 2009 United Kingdom
The Department for Business, Enterprise and Regulatory Reform (BERR) today announced a package of measures to address the cash flow, credit and investment needs of small and medium businesses.
Business Secretary Lord Mandelson has unveiled a support package of loan guarantees and a new Enterprise Fund aimed at helping companies struggling to access finance for working capital and investment.
The government’s measures include:
Working Capital Scheme for short-term bank lending to companies with an annual turnover of up to £500m
The government will provide banks with guarantees covering up to 50 per cent of the risk on existing and new working capital worth up to £20bn. It is intended to protect them from reduction or withdrawal of short-term loans from their banks.
This is a response to the constraint on bank credit available as short-term loans to ordinary-risk businesses. The banks will pay a premium to the government for this scheme.
Capital for Enterprise Fund for investment in viable businesses up to £50m turnover which need capital investment for growth
This £75m fund - £50m from the government plus £25m from the banks - provides long-term capital of £250,000 up to £2m, in exchange for an equity stake in the business.
Enterprise Finance Guarantee for bank lending to small, credit-worthy firms with a turnover of up to £25m
This scheme will secures up to £1.3bn of additional loans by participating banks * and replaces the Small Firms Loan Guarantee (SFLG) scheme. Loans will be available from £1,000 up to £1m for a period of up to 10 years and can be used to convert existing overdrafts into loans.
The government guarantees 75 per cent with banks covering the remaining 25 per cent. The borrower pays a premium of 1.5 per cent to the government – reduced from 2 per cent under the old SFLG.
* The guarantee will be available through Barclays, Clydesdale/Yorkshire Bank, HBOS, HSBC, Lloyds TSB, RBS/Natwest and Northern Bank. It will become available from other lenders if they wish to apply.
Business Secretary Lord Mandelson said:
"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. That is why we have designed a package of measures addressing different forms of credit and providing real help for businesses."
These announcements build on the government’s commitments outlined by Chancellor Darling in last November's Pre Budget Report. In addition, the Working Capital Scheme seeks to introduce conditions on the banks to provide capital for new lending that they would otherwise not have provided.
The Working Capital Scheme is subject to the UK being given EU State Aid Clearance. The Enterprise Finance Guarantee scheme will be available up to March 2010.
Lord Mandelson also confirmed today the government is discussing with trade credit insurers a scheme to help companies affected by reductions in their credit insurance.
Business reactions
The Federation of Small Businesses welcomed the Enterprise Finance Guarantee, which the FSB has been campaigning for since October, and said that the banks have now run out of excuses.
The FSB called for this scheme to be topped up as small firms use it, pointing to the latest figures from the banks showing overdrafts were reduced by £100 million during October and November last year.
FSB National Chairman John Wright said: “It is sad to see that since we proposed our package in October, small business closures have risen to around 85 a day, meaning over 6,000 have closed while waiting for this fund.”
Director General of the British Chambers of Commerce, David Frost, said: “We support these measures and expect the banks to start lending to business with immediate effect.
“If a rapid take up of these guarantees highlights the need for more financial support then we would expect the Government to work with the banks to extend the package.”
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