Small Firm Loan Scheme Opened By Government

There is no scope for any giveaways for Osborne in his March 21 budget with UKs prized triple-A credit rating under growing pressure

. He is expecting that the private sector recovery will be kick-started by the scheme for filling the gap in demand which was left by governments austerity measure. But, the appearance of the cracks in the National Loan Guarantee Scheme (NLGS) is visible now. Only four prominent lenders of UK among the five have signed up to participate. HSBC (HSBA.L) is saying that it is not commercially viable for it to offer the borrowings.

According to treasury officials, scheme is less attractive for banks which have a strong deposit base and they do not trust on funding from wholesale markets, or for banks which get benefit from low borrowing prices. It is argued by business groups that NLGS does not address the issue of stringent lending conditions of banks which according to them pose a bigger obstacle to companies who are getting borrowings than the price of credit. NLGS is open to companies with turnover of up to 50 million pounds.

Director General of British Chambers of Commerce, John Longworth said that it is not a panacea for all the troubles faced by enterprises trying to access finance while credit easing is a step in the proper director. He added, "It will not help the smaller, younger, and high-growth firms that have trouble getting credit in the first place." It is shown by central bank data that the money has not been getting via small enterprises, despite the interest rates in UK are at record low and hundreds of billions of pounds have been pumped by Bank of England into the financial system. Apply for 1000 loan and get required cash by you in minutes.

Banks had been made reluctant to lend to small firms by the euro zone sovereign debt crises which were combined with weak domestic demand and an uncertain economic outlook. Companies have lost their confidence to take on debt. According to Osborne, the goal of the NLGS was to facilitate the companies to get benefitted from the ultra-low borrowing costs which were currently enjoyed by the government.

Interest rates will have to be offered by banks which are participating in the NLGS. These interest rates are 1% point lower as compared to the loans outside the scheme. Therefore, a business which receives a loan of 1 million pounds could receive a rebate of up 10,000 pounds a year. According to The Treasury, 5 billion pounds would be offered by it in guarantees in a first tranche, with factors like market share, track record of lending to small businesses, gross and net lending and capacity to lend under the scheme determining the size of allocation of a bank.

by: Steve M

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