Government promises loans of up to £20b to help small businesses

The Government today announced plans to guarantee up to £20b of loans to help small businesses cope with the economic downturn.

Under the proposals, unveiled by Business Secretary Peter Mandelson, the Government will insure banks against the threat of companies defaulting on loan payment.

David Grant, head of UK business mortgages at property agent Christie & Co, said the scheme should help hospitality operators looking to protect or expand their operations but he added that much will depend on whether the banks will relax their current strict lending criteria to small firms.

The move was also welcomed by David Frost, director-general of small business organisation the British Chamber of Commerce.

“Businesses are critically in need of cash-flow. Any move to get banks lending again will be seen as good news at this bleak time,” he said. “A government promise to guarantee individual loans to businesses is not only sensible, it's crucial.”

The proposal includes:

• A £75m Capital for Enterprise Fund (£50m from Government, plus £25m from the banks) to invest in small businesses that need equity.
• A £10b Working Capital Scheme, securing up to £20b of short-term bank lending to companies with a turnover of up to £500m.
• An Enterprise Finance Guarantee Scheme, securing up to £1.3b of additional bank loans to small firms with a turnover of up to £25m.

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By Daniel Thomas

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