Ahead of this week’s Budget the Chancellor, George Osborne, has launched a new scheme aimed at making it easier for smaller businesses to borrow money.

National Loan Guarantee Scheme

The National Loan Guarantee Scheme (NLGS) will allow small to medium size businesses to borrow money at interest rates 1% lower than outside of the scheme.

Businesses with an annual turnover of up to £50 million will be eligible and so far Barclays, Santander, Lloyds and Royal Bank of Scotland have all agreed to take part; it is hoped that other banks will sign up in due course.

However HSBC, one of the largest business banks in the UK, has not joined the scheme, saying that it supported the idea of the scheme but could not participate due to “unviable commercial terms.”

Lending to small businesses

The banks can afford to offer the lower rates of interest as the government has agreed to guarantee £20 billion of the bank’s own borrowing, making it cheaper for the banks to borrow money, a savings which can be passed on to businesses who sign up to the scheme.

The scheme will initially see about £5 billion of lending made available to smaller businesses.

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.”

Responding to the announcement, John Walker, National Chairman of the Federation of Small Businesses (FSB), said: “Recent FSB research indicated that around 60% of small firms believed that credit is unaffordable and so this scheme should help reduce that burden.”

Warnings

Other banking experts though have warned that for many businesses the rate of interest being charged is not as much of a problem as actually getting financing in the first place.

John Longworth, Director General of the British Chambers of Commerce agreed: “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.

“The National Loan Guarantee Scheme 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.”