Business lending plan fails to cut rates

The Government's flagship small business lending scheme failed to bring about any significant reduction in the cost of borrowing for SMEs, new figures reveal.

The National Loan Guarantee Scheme, which was launched just ahead of George Osborne's March Budget, was hailed by the Chancellor as a means "to help small businesses get access to lower interest rates" by using the "credibility" of the Government's balance sheet.

Yet interest rates on business loans worth less than £1m fell only 0.08 per cent, from 3.79 per cent to 3.71 per cent, during April, the first month of the NLGS's introduction. Interest rates on these loans were actually higher than the 3.62 per cent seen a year earlier, Syscap, a business finance firm, pointed out.

The Treasury's scheme is supposed to underwrite up to £20bn in lending and lower the interest rate of small business loans made under it by 1 percentage point. But three months after its launch, only nine banks have signed up, and not all have made discounted loans available. Philip White, chief executive of Syscap, said: "The NLGS has not yet had the hoped-for impact on borrowing costs for small businesses."