Loan guarantee scheme launched by Government

Below are details of the Government’s newly launched business loan guarantee scheme which is hoped will encourage bank to lend more to small and medium sized businesses.

Working Capital Scheme

  • A part-guarantee given to £20bn of short term loans, the Government will guarantee 50% of the loan, amounting to a total commitment of £10bn.
  • Open to companies with turnovers up to £500m.
  • Can be used both to increase existing and establish new loan agreements.
  • The first £1bn of guarantees should be available by 1 March 2009, with the remainder until 31 March 2011.
  • Banks will submit loan details to the Department for Business, Enterprise and Regulatory Reform (BERR) on a “portfolio” basis. BERR will assess the risk of the portfolio and charge the bank a fee for the guarantee – the higher the risk, the higher the fee. This fee is likely to be passed onto the company borrowing the money.
  • Declarations of interest have been received from Barclays, HSBC, Lloyds TSB and RBS.

Enterprise Finance Guarantee Scheme

  • A part-guarantee over £1.3bn of new lending, the government will guarantee 75% of the loan.
  • Companies with turnovers up to £25m can apply for loans between £1,000 and £1m to be repaid over a maximum of 10 years.
  • Existing overdrafts can be converted to loans, which will allow businesses to use their overdraft facilities to fund working capital.
  • The scheme will be open until March 2010.
  • Businesses in the agriculture, fisheries, coal, synthetic fibres and yarns, motor vehicles, shipbuilding, steel and transport sectors are ineligible.
  • The Enterprise Finance Guarantee Scheme will initially be available through Barclays, Clydesdale/Yorkshire Bank, HBOS, HSBC, Lloyds TSB, RBS/Natwest and Northern Bank.

Capital for Enterprise Fund

  • £75m fund, with £50m from the Government and £25m from Barclays, HSBC, Lloyds TSB and RBS.
  • This is designed as a long-term solution for businesses which have exhausted all other forms of funding.
  • Businesses will be able to sell their debt for equity – effectively selling part of the business to relieve the debt burden.
  • Companies with turnovers up to £11.2m and fewer than 250 employees will be able to exchange between £250,000 and £2m of debt for equity.
  • Businesses in Northern Ireland, Scotland or Wales are not eligible.

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