Chancellor launches scheme to boost small business lending
Chancellor has today launched the National Loan Guarantee Scheme (NLGS), helping smaller businesses across the UK access cheaper finance.
The Chancellor has today 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 Chancellor said:
The Government promised to help small businesses get access to lower interest rates. 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.
Notes for Editors
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The banks currently participating in the scheme are: Barclays, Santander, Lloyds and RBS. Aldermore have also agreed, in principle, to join the scheme.
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Participating banks may cease to participate depending upon market conditions. Institutions not participating at the outset of the scheme may do so in future.
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Some banks are funded largely from deposits and do not normally access wholesale funding markets (i.e. by issuing bonds), and therefore cannot benefit from a government guarantee on bond issuance. Other banks may already be able to raise funds on the wholesale market at a relatively low cost.
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The allocation of guarantees to each participating bank is at the discretion of the HM Treasury, and based on a number of factors including: market share; gross and net lending; track record of lending to small businesses; and capacity to lend under the scheme.
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The first tranche of NLGS guarantees is for a total of around £5 billion, with a minimum allocation per bank of £100 million. The size and timing of subsequent tranches will be determined by demand.
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All UK businesses with a company group annual turnover of less than £50 million, including UK incorporated companies and branches of foreign incorporated parents with a genuine business in the UK, may apply for loans at participating banks.
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Businesses that take out an NLGS loan will receive a discount of 1 percentage point compared with the interest rate they would otherwise have received from that bank outside the scheme. As an example, a business receiving a loan of £1 million could receive a discount up to £10,000 a year - money that can be reinvested in the future of that business.
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The provision of guarantees is being administered by the UK Debt Management Office. As a condition of participating in the scheme, the banks have agreed a monitoring framework with the Government. All banks will have to submit quarterly reports containing data on the loans they have made under the scheme, and demonstrate that they are passing on all the benefit of the guarantees to businesses. The scheme will also be independently audited.
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An NLGS discount can be offered on new term loans, hire purchase and leasing arrangements. Precisely which products will be offered will be determined by each bank. Refinancing of existing facilities where the term or amount has changed is also permitted. NLGS loans must have a minimum term of at least 1 year.
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NLGS discounts will not be offered on overdrafts, revolving credit, invoice finance and business credit cards.
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There is no minimum loan amount in the scheme rules. Very small loans may not, however, be offered by all banks, given the relatively high administrative costs of such loans. Participating banks will determine the minimum loan size that they offer under the NLGS.
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Under the European Commission’s de minimis State aid rules, a business may not receive more than EUR 200,000 worth of State aid over any three year period. Some loans under the NLGS will result in State aid.