Friday, 16 January 2009

Government to guarantee £20billion loans to small businesses

The business secretary, Lord Mandelson, has unveiled a £20bn package to support small businesses during the recession, by boosting the availability of credit from the banking sector. The package means that the government will provide £10bn of working capital to customers with a turnover of less than £500m (a measure which could cover all but the largest 350 companies in the UK), and £1.3bn of loans for companies (particularly those in sectors which are seen to be vital in rebuilding the economy) with a turnover of up to £25m (Financial Times). In return for a fee the state will insure banks against companies defaulting on loan repayments (BBC).

One cause of this package was banks’ reluctance to lend to businesses, as they were afraid that, as the economy sinks deeper into recession, more companies would find it difficult to meet debt obligations (The Guardian).

As with a recent previous programme to help smaller business, Mandelson believes that this package will help steer businesses through this economic downturn into a stronger position once this climate is over (The Telegraph). However, many feel that £20bn is not enough to get the banks lending sufficient funds to help businesses get access to much needed cash, with members of the Conserative party stating that the figure should be £50 billion instead.

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