The European Commission has approved a plan that should see banks lending more money to small businesses.
State aid has now been approved for the National Loans Guarantee Scheme and a Treasury spokesperson said the scheme should be launched at the beginning of this week.
Small businesses, whose turnover is less than £50 million, will qualify for lower cost loans. Furthermore, £1 billion will be made available through a Business Finance Partnership for investment into UK SMEs.
John Walker, the national chairman of the FSB, expressed his pleasure that the scheme was going ahead. Recent research by the Federation has shown that 60% of small businesses believe credit is unaffordable, so any scheme that chops up to 1 percentage point off the cost of a loan has to be welcomed.
The Government and the UK banks now have to make sure that everybody involved in operating the scheme knows exactly how it will work. Without clear information, small firms will still be denied access to the credit they so badly need.
Not all banks will be allowed to participate in the scheme. Their record of small business lending will determine their access to the scheme and the Bank of England will be collecting lending data to back this up.
Whilst banks may be encouraged to increase lending in order to access the scheme, they will still have to be prepared to take on the full credit risk of all the loans they grant.
© 2012 All rights reserved. Reproduction in whole or in part without permission is prohibited.
Image: Money and Calculator by Images_of_Money
