Chancellor George Osborne has launched major new schemes to support UK small and medium-sized enterprises in his Autumn Budget statement.
A National Loan Guarantee Scheme is being launched in the coming months specifically for small businesses, offering new loans and overdrafts to businesses with turnover under £50m.
It works on the principle that the government passes on the low interest rates it can borrow at to small firms, reducing their interest charge.
It is expected the scheme will lead to reductions of 1 percentage point in the rate of interest being charged to these companies, meaning that a business facing a 7% interest rate on a £5m loan would pay interest at 6%, saving them up to £50,000.
Funding will be allocated to different banks based on how much they increase both net and gross lending to firms, with a clear audit trail to ensure banks comply. An initial £20bn of these guarantees will be available over the next two years.
Alongside this, the government is launching a £1bn Business Finance Partnership aimed at Britain’s mid-sized companies. The government will invest in funds that lend directly to these businesses alongside other investors like pension funds and insurance companies. It will give these mid-cap companies a new source of investment outside the traditional banks, and if it takes off, Osborne said he would increase its size.
In addition, the last government’s Enterprise Finance Guarantee scheme has been expanded, and will be expanded to include businesses with annual turnovers of up to £44m and accrediting new lenders like Metro Bank.
These programmes will run alongside the government’s credit easing scheme, which has a ceiling of £40bn.
At the same time, Bank of England governor Mervyn King has agreed with Osborne to reduce by £40bn the Asset Purchase Facility the previous government gave the Bank to buy business loans, as only a small proportion of the facility was ever used.
Announcing the measures, Osborne said: “We will develop further partnerships ideas and ideas for new bond issuance to help Britain’s small and medium sized firms.
“No government has attempted anything as ambitious as this before, we will not get every detail perfect first time round – but we don’t want to make the best the enemy of the good.
With the strain on the financial system increasing, the important thing is to get credit flowing to Britain’s small businesses.”