Bank lending scheme targets smaller businesses


Chancellor George Osborne: "We've got almost all the major banks taking part"

A £20bn government scheme to try to boost bank lending to small and medium-sized enterprises (SMEs) has been launched by the chancellor.

Under the National Loan Guarantee Scheme (NLGS), such businesses will be able to access loans with interest rates one percentage point lower than those available outside the initiative.

Barclays, Santander, Lloyds and Royal Bank of Scotland have so far signed up.

Firms with an annual turnover of up to £50m will be able to participate.

The discounted loans are being made available because the government is to guarantee £20bn of the banks' own borrowing, thereby allowing the lenders to borrow more cheaply than they normally do.

The banks then pass on this cheaper funding to SMEs in the form of lower interest rates.

Lloyds said that as well as allowing it to offer customers cheaper loans, the scheme had the potential to "rekindle confidence, stimulate demand and encourage investment".

'No panacea'

Chancellor 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."

Start Quote

There is a big paradox around credit easing, which some will find amusing and some will find painful”

End Quote

In the first tranche of loans under NLGS, about £5bn is being made available.

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.

"What we now need to see is clear communication to small firms and bank branch staff so that everyone is aware of it, and how it will work, so that businesses can benefit from it."

The British Chambers of Commerce (BCC) has given the credit easing scheme a measured welcome.

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The current state of banks and their treatment of small businesses is disgusting”

End Quote Chris Nicholaidis Small business owner, Tyne & Wear

John Longworth, BCC director general, said: "The current economic challenges mean that the government must look at new and innovative ways of providing credit to viable firms.

"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."


Not all banks have signed up to the scheme, with HSBC being a notable omission.

HSBC said in a statement that while it "supports the aims of the government's credit easing programme", it was "unable to participate on commercially viable terms".

John Longworth, British Chambers of Commerce: "It will really only apply to medium sized businesses"

It explained that this was because unlike many other banks, it was predominantly funded by customer deposits, and therefore had "little need" to borrow funds from the wholesale markets.

It is this borrowing from the wholesale markets that the government is to guarantee under NLGS.

The Co-operative Bank also said that it was not participating in the scheme as it would be more expensive to obtain funds through NLGS than via its current methodology.

This would require additional costs to be passed on to customers, the bank said.


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Budget 2012

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  • rate this

    Comment number 28.

    Why did we pay £47 billions for 83% of RBS to save it, plus about £15 billion a year in implicit subsidies to it?

    Wouldn't it be cheaper and easier to fully nationalise and restructure RBS like the Nordics did to their banks in the 90s (get rid of casino banking) and make it into a bank specialized in SME lending?

    Half the £20 billion could pay to setup for a UK childcare system like Norway's

  • rate this

    Comment number 27.

    I get that businesses with a turnover of up to £50m want loans. But what about the SMALL businesses - when did £50m become small? What about my neighbourhood small businesses fighting the bg supermarkets? Who will be helping them? Only Mary Portas, not the banks.

  • rate this

    Comment number 26.

    All missing the fundamentals.....Good business Won't borrow, and bad business can't.

    btw, who thought that borrowing, after a credit boom was a good idea lol

  • rate this

    Comment number 25.

    Why didn't we nationalise Northern Rock and use that to offer these loans, then instead of bending over to the likes of the big 5 we actually make them compete if they want any business.

    The QE and other financial measures are being dropped into the wrong places, private banks balance sheets.

  • rate this

    Comment number 24.

    21 Rizzle

    "It annoys me that bbc etc seem to accept these shallow policies"

    You are absolutely right!

    I agree about Paxman & resent funding his wage, he's not only clueless he's rude, I no longer watch him.

  • rate this

    Comment number 23.

    @6 - This doesn't guarantee the loan to the small business - it guarantees the bank so if the SME pay the banks are not out of pocket Banks still require personal guarantees from directors so if economy nose dives though no fault of the director, they will lose their house etc - the banks are covered twice.
    GUARANTEE THE SME LOAN NOT THE BANK. 1% on £50K is £500 pa - £10pw, £40pm. Irrelevant!

  • rate this

    Comment number 22.

    The BCC guy on the link says it as well - the banks will still only lend to bigger well established companies, so no change there then. They will not even pass the rate reduction on - they will just pocket the difference. Believe me I see it every day as a broker.

  • rate this

    Comment number 21.

    It annoys me that bbc etc seem to accept these shallow policies. They never go deeper then asking a randon question on the topic.
    Jeremy Paxman even seems clueless when asking about business.

  • rate this

    Comment number 20.

    Absolute lunacy. I'm a finance broker and the issue isn't whether its 6% or 7%, its the fact that banks being the fat cats they are, only want the cream.

  • rate this

    Comment number 19.

    There is no sense in a business borrowing money until it HAS business, like consumers buying its products/services. For that, consumers must be ready to spend what money they can. But with job security as weak as it is, few want to spend unless they have to. Better to repay personal debt now that credit card interest is increasing. Soon it'll be mortgages.

  • rate this

    Comment number 18.

    Looks a bit duplicitous to me. The gov wants to cut the country's debt yet is encouraging businesses to borrow. It might be best to wean businesses off debt where possible by cutting back on taxes and the like.

  • rate this

    Comment number 17.

    This is not tackling the real problem facing SMEs which is actually being able to establish credit facilities in the first instance. It's accepted this measure will assist cashflow. More assistance is needed to restore banks appetite for credit in the SME marketplace which is wounded by the economy caused from the self harm many banks created.

  • rate this

    Comment number 16.

    It didn't work the first time, nor the second, the money disappeared into bonuses. £20 billion will make it cheaper for banks to borrow, WHAT??? they already have a 0.5% preference rate funded by the taxpayers, they can lend at 1.5% and still make money.

  • rate this

    Comment number 15.

    Once again, what part of no disposable income does Osborne not understand. what's the point of helping business when there are no customers?
    BOE base lending rate 0.5%. Typical bank business loan rate from 8%.
    Osborne should be looking into why the banks charge so much, not subsidising them charging it!!!

  • rate this

    Comment number 14.

    It's always all about borrowers.

    I see that inflation's fallen to 3.4%.

    Great. After tax, a typical careful saver's only losing about 1% pa now.

    Meanwhile their savings remain stake money, the expected returns on which continue to pay bonusues...

  • rate this

    Comment number 13.

    Further evidence that we should simple nationalise the banks.

  • rate this

    Comment number 12.

    This smacks of another round of the tax-payer ensuring the profits (and ultimately bonuses) of the banks at zero risk to the latter

    After all; Who do you think will pick up the tab if it all goes wrong?

  • rate this

    Comment number 11.

    Yet more state intervention from the party that advocates the free market .... unless that involves losses for their chums.

    More banks being propped up in the face of large bonus's.

  • rate this

    Comment number 10.

    It appears to me that the government is so desperate for private enterprise to succeed, that they will throw money at patently ridiculous ventures. I know of someone whose business routinely goes bankrupt only to spring up again later.

  • rate this

    Comment number 9.

    Yet more taxpayers money going to profit banks and private companies...

    When will we learn?


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