Small Business Lending: £20bn of guarantees to increase supply of credit

A raft of measures aimed at getting money flowing to smaller companies lie at the heart of George Osborne's economic and political strategies.

The Chancellor announced £20bn of guarantees over the next two years to increase the supply of loans and cut the cost of them to businesses with an annual turnover of less than £50m.

The National Loan Guarantee Scheme will allocate funding to banks according to how much they lend to small and medium enterprises (SMEs).

The scheme will cut interest charged on new loans to eligible smaller companies by one percentage point, Mr Osborne said. A business borrowing £5m at 7 per cent today could save up to £50,000 and the scheme will be up and running within months, he said.

It is the centrepiece of the Mr Osborne's plan for "credit easing", announced early last month. The Chancellor has faced extreme pressure to get credit flowing to small businesses, which generate more than half of Britain's economic output.

Small firms have been particularly badly hit by the banking crisis because they rely on bank loans whereas bigger companies can raise money in the financial markets.

The Government agreed "Project Merlin" with the banks in February to get £76bn of new finance to small companies this year but the banks are lagging behind on the target and businesses claim they face punishing interest rates.

The scheme "will work on the simple principle that we use the hard-won low interest rates that the Government can borrow at to reduce the interest rates that small businesses can borrow at," Mr Osborne said. "With the strain on the financial system increasing, the important thing is to get credit flowing to Britain's small businesses."

Ed Balls, the Shadow Chancellor, said the plan was an admission that Project Merlin had "patently failed". Mario Cientanni, a partner at accountants Barnes Roffe, warned that after the "severely flawed" Merlin deal the banks could still run rings round the Government.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Project Management Support Assistant

£20000 per annum: Recruitment Genius: This Railway Museum, the largest of its ...

Sauce Recruitment: FP&A Analyst -Home Entertainment

£250 - £300 per day: Sauce Recruitment: (Rolling) 3 month contractA global en...

Recruitment Genius: Sales and Account Manager - OTE £80,000+

£40000 - £80000 per annum: Recruitment Genius: This is a fantastic opportunity...

Ashdown Group: Junior Web Developer - Kent - £40,000

£30000 - £40000 per annum + benefits: Ashdown Group: Junior Web Developer - ne...

Day In a Page

Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project