Welcome for plan to ease credit for small companies

The Government is expected to underwrite up to £40bn in loans to cash-strapped businesses in a bid to kick-start Britain’s struggling economy.

The new National Loan Guarantee Scheme – which is intended to cut the cost of borrowing for small and medium-sized firms (SMEs) – was welcomed by business leaders but they wanted to see more details about how it would work.

Under the plan, the Government will underwrite the banks’ borrowing on the commercial money markets, enabling them to borrow more cheaply. The banks will then pass on the savings to the firms they lend to in the form of lower interest rates.

Gordon Millward, regional chairman of the Federation of Small Businesses, said: “We hope that when the full details are made known, the Chancellor will have included measures to reduce the total dominance of the large banks.

“We await the full details of the Chancellor’s schemes, but it is hoped that his key objective is to improve the supply and price of credit to the lower end of the market, below loan values of £25,000, where the majority of demand lies. If this is the case, the promised substantial easing of credit availability should encourage innovation and competition in the marketplace.”

Nick Dodd, debt advisory director at KPMG in Leeds, said: “A key area is increasing the flow of funding into business and the proposed credit easing measures are positive on three counts; they hold the potential to reduce SMEs’ borrowing costs; stimulate activity at the SME end of the market and improve liquidity.

“Of course, guidance on the detail regarding implementation will be welcomed in the Chancellor’s autumn statement today or in due course.”

Jonathan Riley, senior partner for Grant Thornton, said: “This size of company are the ones who can invest for growth, generate sales and, therefore, employment and contribute towards getting the UK going again. But banks must be held to account: we don’t want to hear that they are willing to extend finance to companies only to find that in reality a lot of this ‘new’” lending is in reality renewal of facilities.”

Margaret Wood, regional chairman of the Institute of Directors in Yorkshire and the Humber, said: “Anything that can help support business, and particularly working capital and investment into the future, by government will certainly go a long way to ensuring stability and growth.”

Andrew Goodwin, an independent senior economist to Ernst & Young’s ITEM Club, added: “We now have an idea in place but little else so I will be looking to George Osborne to deliver quite a lot of detail and push it through quite quickly.”