Small and medium businesses will have access to £20bn of loans to help them through recession, according to plans unveiled by the government.
Banks will be insured against companies defaulting on their loans to encourage them to lend more freely.
The government will provide guarantees on 50% of £20bn of short-term loans to businesses with turnovers of up to £500m.
Business Secretary Peter Mandelson says:
"The £10bn injection to banks represents a guarantee to enable them to free up working capital to sustain exisiting loans and create new ones.
"A condition of [banks] getting the money will be that they negotiate with the government on what capital will be freed up.”
It all sounds very impressive.
However, a letter to the Guardian reinterpreted the figures, putting the scope of this
If only half of UK SMEs requested funds from this pot, they would each only be able to get a loan of £8,811.88. That won't help SMEs
John Benner, IGF Group
package in a different light altogether. “If only half of UK SMEs requested funds from this pot, they would each only be able to get a loan of £8,811.88. This is not going to help SMEs or crack the liquidity and confidence crisis.”
The Conservatives have accused Labour of not doing enough, saying they would underwrite more than double the amount targeted by the government – £50bn worth.
Another letter to the Guardian urges the government urges businesses to avoid using the money to prop up failing businesses. “By all means let's free-up the credit market, but guaranteeing loans to failing companies at the taxpayers' expense could work against the longer-term regeneration of business, one of the possible benefits of the recession,” wrote John Benner of the IGF Group.
Let’s hope Mandelson means what he says when he says that bank lending would be targeted at "innovative, viable and growing [companies] that are finding it difficult to access working capital.”
