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Financial services
Lending to business and credit easing
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The Government recognises that access to finance is essential if businesses are to invest, grow and make their important contribution to supporting the economic recovery.
As part of the Autumn Statement in November 2011, the Chancellor announced a package of measures to ease the flow of credit to businesses that do not have ready access to capital markets.
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Scheme details announced
On 20 March 2012 the Chancellor launched the National Loan Guarantee Scheme, helping smaller businesses to access finance. Details are now available of the scheme with links to each of the participating banks:
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Background
The National Loan Guarantee Scheme will lower the cost of bank loans for smaller businesses with turnover of up to £50 million. The Government will allow participating banks to raise up to a total of £20 billion of cheaper funding over the next two years under a government guarantee, provided that they pass through this lower cost of funding to smaller businesses. The scheme will be operational as soon as possible, subject to state aid approval.
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Further information can be found in the National Loan Guarantee Scheme document and will be updated in due course;
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In addition, the Government will also help businesses raise funds from non-bank sources by making available £1 billion through a Business Finance Partnership, to invest in mid-sized businesses and SMEs in the UK. This will initially focus on co-investment with the private sector through loan funds. The Government will also consider options for investing through other non-bank lending channels, and welcomes proposals.
The Government is now engaging with relevant stakeholders on the Business Finance Partnership, and has set out further details in December;
The Government has now also published a ‘Request for Proposals’, which invites fund managers to make proposals to manage the Government’s investment in loan funds. This is available here:
- Business Finance Partnership: Request for Proposals (PDF 162KB)
- Press Notice (09/12): Government invites proposals for Business Finance Partnership announcing the publication of the Request for Proposals (30/01/12)
The deadline for this tranche of proposals is 20th February 2012, and the Government intends to set out the managers with which it intends to invest in spring. However, it is expected that further tranches of proposals will be requested later in 2012. Any enquires about the Business Finance Partnership can be directed to businessfinance.partnership@hmtreasury.gsi.gov.uk.
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As announced at the Autumn Statement, the Government has also established an industry-led non-bank lending taskforce that will report by Budget 2012. This will be chaired by Tim Breedon, Chief Executive of Legal & General Group plc and will look at the structural and behavioural barriers to the development of alternative debt markets in the UK. Further information, including the terms of reference and a call for evidence, can be found on the Department for Business, Innovation and Skills (BIS) website (opens in a new window).
These measures follow on from other Government action to support access to finance. In February 2011, as part of the Project Merlin agreements, the Chancellor announced that the banks intend to lend £190 billion of new credit to business in 2011, up from £179 billion in 2010. £76 billion of this lending will be to small and medium-sized enterprises (SMEs) – a 15% increase on 2010 (£66 billion). The lending commitments will be part of the performance metrics of each bank’s chief executive and those senior managers responsible for business lending. Performance against these commitments will be collected and published on a quarterly basis by the Bank of England.
In July 2010, HM Treasury and the Department for Business, Innovation & Skills (BIS) published a Green Paper on business finance – ‘Financing a Private Sector Recovery’. This Paper sought views from industry, the financial sector and individuals on the challenge of ensuring businesses can access a range of sources of sustainable finance as the economy recovers.
The Government received over 180 submissions from interested parties, which were primarily focused on the problems faced by small businesses.
Later in 2010, the Government set out its response, including a comprehensive package of Government and industry-led measures to support access finance for small businesses.
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