SMEs to benefit from lending scheme

Small businesses struggling to access credit at competitive rates are set to benefit from an “ambitious” lending scheme from the Treasury.

Companies with a turnover of less than £50m will receive a discount of one percentage point compared to the interest rate they would have typically received from the bank under the National Loan Guarantee Scheme (NLGS).

Lloyds, Santander, Barclays and the Royal Bank of Scotland are among the lenders to sign up for the scheme, which is designed to unblock the flow of credit to SMEs.

Specialist lender Aldermore is also among the lenders to sign up to the NLGS. Chief executive Phillip Monks said: “London-based small businesses have been frustrated by high borrowing costs, as well as a lack of credit availability.

“Having access to cheaper finance via the NLGS will make it easier for these businesses to invest and grow, and we expect to see considerable take-up for these loans among businesses in the capital.”

The banks will pass on the entire benefit from the guarantees to the companies which borrow from them. The government will guarantee up to £20bn on secured borrowing by the banks.

Federation of Small Businesses (FSB) London regional chairman Steve Warwick said: “We are pleased that credit easing is now available for small firms to use.

“Recent FSB research indicated that around 20 per cent of small firms in London have seen an interest rate on a loan/overdraft of above 15 per cent so this scheme should help reduce that burden.

“What we now need to see is clear communication to small firms and bank branch staff so that everyone is aware of it and how it will work so that businesses can benefit from it.”

Chancellor George Osborne said the government’s deficit reduction plan had earned it credibility resulting in low interest rates and these could now be passed onto businesses through the NLGS. The government has benefited from the UK’s perceived status as a safe-haven from the turmoil in the eurozone.

The Treasury will be able to decide how much of the total guarantee will be allocated to each lender on the basis of market share, gross and net lending and their track record of lending to SMEs.

An initial £5bn of NLGS guarantees will initially be divided among the banks, with each participating institution receiving at least £100m. Demand will dictate the timing and size of future tranches.

The UK Debt Management Office is administering the provision of guarantees and the banks have agreed to a monitoring framework with the government as a condition of taking part in the scheme.

Quarterly reports featuring data on the loans made by the banks will need to be complied, while the institutions will also have to show they are passing on all the benefits of the NLGS to SMEs.