20th March 2012
The National Loan Guarantee Scheme (NLGS) has finally been launched by the chancellor, George Osborne.
The £20bn bank loan scheme, which we first reported on back in November of 2011 (National Loan Guarantee Scheme Will Cut Borrowing for SMEs) has been designed to give SMEs access to funding at rates 1% below those outside the scheme so a small business borrowing 1 million pounds could recieve a dsicount of £10,000 per annum. The government is to guarantee £20bn of the banks' own loans.
The lenders that have so far signed up to the scheme are Barclays, Santander, Lloyds and Royal Bank of Scotland. HSBC is one notable omission from the scheme, stating that it could not participate on a commercially viable basis.
The Co-operative Bank is also missing from the list of banks because it believes it would be more expensive to obtain funds through the National Loan Guarante Scheme than by its current methodology.
HSBC and The Co-operative Bank have a strong deposit base whereas the current and future supporters will provide funding from the wholesale market.
Commenting on the launch of the NLGS, chancellor George Osorne said:
“The government promised to help small businesses get access to lower interest rates. Today we deliver on that promise with a nationwide scheme.”
John Cridland, CBI Director-General, added:
“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.”
Some critics believe the National Loan Guarantee Scheme is still not enough as the UK SME sector is expected to face shortfalls in funding over the coming years.
Business Secretary Vince Cable still believes that the government should set up its own state-owned bank whilst a government-commissioned taskforce has recently published a report on non-bank and alternative lending.
For further small business advice on funding see: