News

March 27, 2012

National Loan Guarantee Scheme targets small firms

A new National Loan Guarantee Scheme (NLGS) has been launched by the Government to boost bank lending among small firms.

Under the £20-billion scheme, the Government is offering banks guarantees on their unsecured borrowing to encourage lenders to pass on cheaper rates to businesses. Funds will be available to businesses at one percentage point lower than normal commercial lending rates.

In the first round of loans being made available under the NGLS, £5 billion worth of funds are being released and firms with an annual turnover of up to £50 million can apply.

So far, Lloyds, Santander, Barclays, Royal Bank of Scotland and new business bank Aldermore have signed up to the initiative. Loans will be made available immediately, and there is no minimum borrowing amount.

Unveiling the NGLS, Chancellor George Osborne said: “The Government promised to help small businesses get access to lower interest rates. Today, we deliver on that promise with a nationwide scheme.”

However, business groups have raised concerns that the NGLS does not address the issue of restrictive bank lending criteria — one of the main stumbling blocks to successful loan applications among small firms — meaning that small firms could still be excluded from getting funds.

“The NLGS 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,” said British Chambers of Commerce director general John Longworth.

“While credit easing is a step in the right direction, it is not a panacea for all the problems faced by businesses trying to access finance,” he added.

The Confederation of British Industry agreed, saying the scheme would “not solve the structural issues” around small firms securing bank finance, according to director general John Cridland.

• Find out more about the NLGS