Osborne launches National Loan Guarantee Scheme

20 Mar 12
Chancellor George Osborne has revealed that four large high street banks have signed up to the government’s £20bn scheme to boost lending to small businesses.

By Richard Johnstone | 20 March 2012

Chancellor George Osborne has revealed that four large high street banks have signed up to the government’s £20bn scheme to boost lending to small businesses.

Barclays branch

Announcing the National Loan Guarantee Scheme, Osborne announced that Barclays, Santander and part state-owned banks Lloyds and Royal Bank of Scotland have agreed to participate. One smaller lender, Aldermore, has also agreed in principle to the plan.

The proposals for the credit easing scheme were first announced in Osborne’s Autumn Statement last year, and the government has now confirmed it will provide guarantees on funds raised for smaller UK businesses to borrow.

Individual loans will not be state-backed. Instead, the Treasury will underwrite bonds issued to raise funds for business lending.

This will allow the banking groups to provide new loans at a discount of 1 percentage point in the interest rate. Firms with an annual turnover of up to £50m will be eligible for the rate reduction.

Around £5bn in guarantees will be made available in a first round, with each participating bank to receive at least £100m from the administrators of the scheme, the Treasury’s UK Debt Management Office.

As a condition of participating, the banks have agreed to a monitoring framework that will demonstrate they are passing on all the benefit of the guarantees to businesses. The scheme will also be independently audited.

Speaking today, the day before the Budget,Osborne said that the nationwide scheme would help businesses access credit at lower rates.

He added: ‘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 on to businesses.’

The CBI business group welcomed the announcement. Director general John Cridland said that the proposal was ‘a clear signal from government that it is seeking to address aspects of access to finance for smaller businesses’.

However, he warned that lower interest rates, which will also apply to hire purchase and leasing arrangements, ‘will not solve the structural issues’ that constrain lending.

The British Chambers of Commerce agreed that the guarantee scheme was ‘not an panacea’ to resolve the problems faced by firms.

Director general John Longworth said: ‘The National Loan Guarantee Scheme will make some loans more affordable. But it will not help the smaller, younger and high-growth firms that have trouble getting credit in the first place.

“Businesses' trust in banks has been scarred over recent years. Since credit easing will be accessed via the banks, lenders will need to work harder to encourage firms, many of whom have been turned down for loans in the past, to consider applying for credit.’

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