Government guarantees £10 billion in short term loans to businesses

Government guarantees £10 billion in short term loans to businesses


Yesterday the Government announced that it would guarantee up to £21 billion of bank lending, including £10 billion worth of short term loans, for small and medium sized businesses struggling to secure credit.

The Government package, which critics have labelled complex, consists of three main measures.


The first measure involves £10 billion of loan guarantees for medium sized businesses. The state is proposing to underwrite 50% of up to £20 billion of short-term loans for firms that have a turnover of under £500million. Banks have agreed to this, as long as companies seeking funding have a relatively low risk profile.


The second measure outlines small companies receiving guarantees for £1.3 billion. Medium-risk companies – commercially viable but without sufficient bank funding – with a turnover of less than £25 million will have 75% of their loans guaranteed by the Government. It is thought that the scheme will be targeting sectors that are deemed important for rebuilding the economy.


The third measure will see a £50 million fund providing share capital to small companies with high potential growth but excessive debt, backed up with an extra £25 million of new funding from banks.  


The proposal has received a mixed reaction, with the Conservatives calling it “half-baked” and a “pale imitation” of their original National Loans Guarantee Scheme, which was worth £50 billion.


Private equity chief, Jon Moulton said: “Twenty billion pounds is not actually a very large number against the scale of the problems we’re talking about.”


Although many questions remain, with the Government declining to give specific details of how the scheme will operate, perhaps the biggest concern will be how the eligible businesses are selected and just how restrictive the Government will be with this new round of funds.

Leave a comment