Small Business Loans Guarantee On The Way

Tuesday, 14 January, 2009

A new initiative that could see up the government guarantee up to 95% of small business loans is set to be announced tomorrow. Reports suggested the scheme will involve the government underwriting £20bn of loans to companies with businesses of 50 employees or fewer. The programmer is said to be similar in style to the present small business scheme, where the government guarantees 75% of a loan of up to £250,000, though the new scheme is said to increase the size of loans covered to up to £1m.

Small companies have complained bitterly that the credit crunch has seen funding from the banks dry up, despite a commitment to maintain lending to the SME sector as part of the £37bn bank bail-out unveiled last year. But banks are now trying to build up their capital base and profits by restricting loans to both smaller businesses and homeowners.

Lord Mandelson, who will formally reveal the plan, said that the plans would target "genuine business needs." The Conservatives, however, criticized it as being too small; they want to see a £50bn injection into the small business community while Vince Cable for the Liberal Democrats accused Labour of “stunts and wheezes”.

"The government has already invested £37bn of taxpayers' money recapitalizing the banks. It has bottled out of ensuring that the banks comply with their undertaking to maintain lending to sound businesses," he said. Stephen Alambritis, of the Federation of Small Businesses, said that the expected move by the Government would be welcome, but warned it would need careful monitoring to ensure the banks complied.

Source: http://www.sharecast.com/