Government may boost small business loan scheme

Ministers are thought to be debating the introduction of a £20 billion business loan guarantee scheme as a way of ensuring that firms have access to desperately needed financing and credit.

It is believed the scheme would underwrite loans worth £20 billion in total to smaller businesses, with some 95 per cent of the loan being guaranteed by the government.

Sources suggest that the scheme could be opened to firms with a turnover of up to £50 million.

In effect, the new measure would be an extension of the loan guarantee scheme announced in the pre-Budget report.

The hope will be that the scheme will encourage banks, reassured that the risk of lending will not be carried solely by themselves, to boost the levels of credit available to businesses.

Stephen Alambritis, of the Federation of Small Businesses, was reported as saying that the scheme would have to be closely policed to ensure that the banks were giving firms access to the money.

He said: “Banks don’t like to process government ideas. The small-firm loan guarantee scheme took between five and ten years to gain traction. This is the last throw of the dice.”