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Government's £20billion business loan guarantee gets mixed reactions

15 January 2009 / by Rebecca Sargent
The Real Help for Business plan, announced by the Government yesterday, has received mixed reactions from the business and banking industries.

The measures outlined yesterday by the Department for Business Enterprise and Regulatory Reform include a Working Capital Scheme, which will secure up to £20billion of short term business loans to companies with a turnover of up to £500million, and an Enterprise Finance Guarantee Scheme, which will secure up to £1.3billion of additional bank loans to small firms with a turnover of up to £25million.

The plans also include a £75million Capital for Enterprise Fund, allowing the Government to invest in small businesses where equity is needed.

The measures have since been welcomed by the banks that the guarantees will be through. Lloyds TSB said: "The schemes announced today will help us to continue to meet demands for business lending in the coming year, for both smaller firms as well as larger companies."

And, although HSBC has already pledged to make £1billion above its planned lending available to UK Small and Medium Enterprises (SMEs) this year, managing director of UK banking at HSBC, Paul Thurston said:

"We welcome the Government's Working Capital Guarantee Scheme as another valuable step in efforts to support British business."

However, business experts think more needs to be done to ensure the future of the UK's SMEs. Chief executive of the Forum of Private Business, Phil Orford, said that the package "must be followed up by longer-term measures to support small businesses and stimulate the economy."

He continued: "With the Government underwriting bank lending to this level, more businesses considered to be of higher risk will still be able to secure much-needed finance if they can prove they are viable concerns, but it is important to note that many vulnerable small firms will continue to face difficulties when applying for loans and overdrafts in the coming months."

Steve Radley, chief economist at manufacturers' organisation EEF, took a similar view, saying: "With a framework soon to be in place, businesses will be looking to Banks to follow the Government's lead by restarting the flow of finance.

"But as business waits for credit markets to thaw, the Government needs to ensure that vital parts of the supply chain are not lost amidst this maelstrom and quickly put in place support for trade credit insurance and measures to protect skilled jobs."

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