The Government has launched a scheme to guarantee up to £20bn of bank lending to small and medium sized businesses in exchange for firms getting a 1 per cent discount on those loans.
Announced in the Autumn Statement, The National Loan Guarantee Scheme does not guarantee individual loans so banks retain the credit risk, though the Government will be liable if the banks involved fail.
The move is designed to make it easier and cheaper for banks to obtain credit on the wholesale markets. Banks will have to pass on 1 per cent of the savings resulting from the state backing to firms borrowing money. Any other savings made by the bank will go back to the Government to meet European state aid rules, with the minimum return set at 1 per cent.
So far Barclays, Santander, Lloyds, Royal Banks of Scotland and Aldermore have signed up to the scheme.
Chancellor George Osborne says:“The Government promised to help small businesses get access to lower interest rates. Today, we deliver on that promise with a nationwide scheme. It’s only because we have 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.”
In a statement, the British Bankers’ Association says the guarantees will make lending to small firms cheaper: “Banks know it is their job to help viable firms be successful and also recognise the part they have to play in supporting the UK economy. With support through schemes like the NLGS for even lower cost borrowing, now is a very good time for UK businesses to speak to a bank about their financing needs.”