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Chancellor launches scheme to boost small business lending

20 March 2012

The Chancellor has launched the National Loan Guarantee Scheme (NLGS), helping smaller businesses across the UK (with an annual group turnover of up to £50 million) access cheaper finance. The government is using the UK’s budget credibility in financial markets to provide up to £20bn of government guarantees on unsecured borrowing by banks, enabling them to borrow at a cheaper rate. Around £5bn in guarantees will be made available in the first tranche.

Chancellor of the Exchequer, George Osborne

Participating banks will pass on the entire benefit that they receive from the guarantees to smaller businesses across the UK through cheaper loans. Businesses that take out an NLGS loan will receive a discount of one percentage point compared with the interest rate that they would otherwise have received from that bank outside the scheme.

The Chancellor said: “The Government promised to help small businesses get access to lower interest rates. Today [Tuesday 20 March], we deliver on that promise with a nationwide scheme. It’s only because we’ve earned credibility with our deficit reduction plan that we have low interest rates, and it’s only because of this scheme that we can pass the benefits of those low rates onto businesses.”


The Government is not guaranteeing individual loans to businesses and thus not taking on the credit risk of loans made under the scheme. The banks retain the credit risk and therefore their usual lending and credit parameters will apply.

The banks currently participating in the scheme are: Barclays, Santander, Lloyds and RBS. Aldermore have also agreed, in principle, to join the scheme.

All UK businesses with a company group annual turnover of less than £50 million, including UK incorporated companies and branches of foreign incorporated parents with a genuine business in the UK, may apply for loans at participating banks. Businesses that take out an NLGS loan will receive a discount of one percentage point compared with the interest rate they would otherwise have received from that bank outside the scheme. As an example, a business receiving a loan of £1m could receive a discount up to £10,000 a year – money that can be reinvested in the future of that business. 

Industry comment:

John Cridland, CBI Director-General, said: “This £20bn initiative is a clear signal from the Government that it is seeking to address aspects of access to finance for smaller businesses, including the cost of lending. The scheme, otherwise known as credit easing, should help bring down the price of loans to small businesses, but it will not solve the structural issues. For a longer-term solution, the Government must act on recommendations in the Breedon review, which set out practical ways businesses could secure more “patient” sources of funding over a longer timeframe.”

Steve Radley, Director of Policy at the Engineering Employers' Federation (EEF) said: “Cutting the cost of credit is vital at a time when the economy is crying out for companies to invest and a very uncertain demand environment continues to discourage their hand. Government and the Banks should be applauded for introducing such an ambitious scheme in such a short period.

“But the challenge now is to avoid the mistakes of the past when good ideas in Whitehall were undermined by poor understanding on the ground. Government needs to undertake a major communications exercise, working with the Banks at the branch level, to ensure that they are properly equipped to offer the new scheme to the smaller firms that need it. Government needs to make sure that awareness and promotion of the scheme in the regions is strong and act accordingly if in coming months this proves not to be the case."

“The National Loan Guarantee Scheme will help business to access more affordable credit, which is welcome”, said Simon Walker, Director General of the Institute of Directors. He added: “These new, discounted loans will make it easier for smaller businesses to borrow and invest, but they are not a silver bullet. Those firms who are able to get loans will benefit from lower interest payments, but little will change for many who are having problems getting bank finance in the first place. Even those who could borrow under this scheme need confidence, as well as available credit, in order to do so. Without sufficient confidence in the future, they won’t want to take on loans, even cheaper ones.”


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