Chancellor George Osborne has confirmed there will be an increase in lending available for smaller firms.
In today’s autumn statement, the Chancellor unveiled a number of credit easing schemes designed to offer up to £40bn to smaller firms.
The Government will create the National Loan Guarantee Scheme under which it will underwrite a set amount of lending by banks to smaller firms. It says the guarantee will lower the price of lending to small firms by 1 per cent.
Osborne (pictured) said: “We are using the credibility we have earned in international markets to help our domestic economy. New loans and overdrafts to businesses with a turnover of less than £50m will be eligible for the scheme so it stays focused on smaller companies.”
The Chancellor also announced that from January 2012 the Government is extending the Enterprise Finance Guarantee Scheme to include businesses with turnover of up to £44m and is approving new lenders such as Metro Bank to become involved.
Osborne also announced that the Government will reduce the asset purchase facility, given to banks by the Labour government, by £40bn, the Chancellor is publishing his exchange with Bank of England governor Mervyn King today.
Through the National Loan Guarantee scheme an initial £20bn will be made available over the next two years along with a £1bn Business Finance Partnership aimed at Britain’s mid-sized firms.
As part of the Business Finance Partnership, the Government will invest in funds lending to mid-sized businesses alongside non-bank investors such as pension funds and insurance companies.
Osborne said: “It will give these mid-cap companies a new source of investment outside the traditional banks and if the business finance partnership takes off, I stand ready to increase its size.”
The autumn statement says that transactions within the Business Finance Partnership will increase public sector net debt while the National Loan Guarantee Scheme would not directly affect borrowing or debt.
The statement adds the schemes are expected to make a small positive return for the Exchequer.