15 January 2009, 21:47 PM
  • The Government has announced a £1bn Enterprise Finance Guarantee to underwrite up to £20bn in loans to small businesses.

Designed to encourage banks to free up more credit for cash-strapped SMEs, the plan would see the state insuring the banks against the risk of companies defaulting on their repayments. At the heart of the move is a £10bn Working Capital Scheme aimed to encourage banks to lend more freely to “innovative, viable and growing companies that are finding it difficult to access working capital.”

“The £10bn injection to banks represents a guarantee to enable them to free up working capital to sustain existing loans and create new ones,” Lord Mandelson comments. To get the money the banks will have to negotiate with the Government on what capital will be freed up.

The Federation of Small Businesses, which has seen a third of its members struggle to access finance, has welcomed the cash. “We are pleased to finally see the introduction of this fund which mirrors the Small Business Survival scheme that we urged the Government to introduce before the Pre-Budget Report in November,” says FSB National Chairman John Wright. “It is sad to see that since we proposed our package in October, small business closures have risen to around 85 a day, meaning over 6,000 have closed while waiting for this fund.

“The onus is now on bank branch managers to actively promote this money to its small business customers to ensure their survival and the revival of the economy. The banks now have no excuses and we will be encouraging our members to apply for these funds while keeping a beady eye on the banks through our Bank Watch Scheme to ensure that they are lending actively and fairly.”