By Maximilian Clarke

The National Loan Guarantee scheme, a £20bn credit easing scheme that incentivises banks to loan to businesses in a bid to address the credit shortage and help firms expand, has received widespread praise from lenders and business representatives since its official launch this morning (Tuesday).

The scheme will make lending cheaper, incentivising credit starved businesses to seek loans for growth, whilst fostering competition within the market.

Reacting to the announcement, business organisations and financiers have been overwhelmingly positive, welcoming the increased competition among lenders and the improved access to credit for small firms the it will bring.

John Cridland, Director General of the Confederation of British Industry, interpreted the move as a ‘clear signal’ that government is attempting to encourage the UK’s vital small businesses:

“This £20bn 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.

“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.”

A spokesperson for the British Bankers’ Association says:

“Banks are committed to providing the UK’s businesses with the finance they need to develop and grow, and we welcome the National Loan Guarantee Scheme as an additional support for businesses to help them access cheaper finance.

“A number of UK banks are participating in the scheme to help their customers by offering them cheaper loans — this is about encouraging growth and new lending. Banks know it is their job to help viable firms be successful and also recognise the part they have to play in supporting the UK economy.

“The UK’s lending market is very competitive — and with support through schemes like the NLGS for even lower cost borrowing, now is a very good time for UK businesses to speak to a bank about their financing needs.”

Steve Radley, Director of Policy at EEF, the manufacturers’ organisation comments:

Cutting the cost of credit is vital at a time when the economy is crying out for companies to invest and a very uncertain demand environment continues to discourage their hand. Government and the Banks should be applauded for introducing such an ambitious scheme in such a short period.

“But the challenge now is to avoid the mistakes of the past when good ideas in Whitehall were undermined by poor understanding on the ground. Government needs to undertake a major communications exercise, working with the Banks at the branch level, to ensure that they are properly equipped to offer the new scheme to the smaller firms that need it. Government needs to make sure that awareness and promotion of the scheme in the regions is strong and act accordingly if in coming months this proves not to be the case.“

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