By Daniel Hunter

The Chancellor has today (Tuesday) launched the National Loan Guarantee Scheme (NLGS), helping smaller businesses across the UK (with an annual group turnover of up to £50 million) access cheaper finance.

The Government is using the UK’s budget credibility in financial markets to provide up to £20 billion of government guarantees on unsecured borrowing by banks, enabling them to borrow at a cheaper rate. Around £5 billion in guarantees will be made available in the first tranche.

Participating banks will pass on the entire benefit that they receive from the guarantees to smaller businesses across the UK through cheaper loans. Businesses that take out an NLGS loan will receive a discount of 1 percentage point compared to the interest rate that they would otherwise have received from that bank outside the scheme.

“The Government promised to help small businesses get access to lower interest rates," the Chancellor said.

"Today, we deliver on that promise with a nationwide scheme. It’s only because we’ve earned credibility with our deficit reduction plan that we have low interest rates, and it’s only because of this scheme that we can pass the benefits of those low rates onto businesses.”

The Government is not guaranteeing individual loans to businesses and thus not taking on the credit risk of loans made under the scheme. The banks retain the credit risk and therefore their usual lending and credit parameters will apply.

“This £20 billion initiative is a clear signal from the Government that it is seeking to address aspects of access to finance for smaller businesses, including the cost of lending," John Cridland, CBI Director-General, said.

“The scheme, otherwise known as credit easing, should help bring down the price of loans to small businesses, but it will not solve the structural issues.

“For a longer-term solution, the Government must act on recommendations in the Breedon review, which set out practical ways businesses could secure more “patient” sources of funding over a longer timeframe.”

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