Small business loan support scheme unveiled by Mandelson

The government today unveiled a scheme to secure some £20 billion of short term lending to support SMEs with a turnover up to £500 million.

The move brought a glimmer of a smile to the lips of most small business groups, but a political row erupted about whether the £10 billion working capital scheme was enough.

Unveiled by the Department for Business, the £10 billion working capital scheme is aimed to ensure viable, growing companies are able to get their hands on the credit they need to continue trading during the downturn.

In an interview with the BBC, Business Secretary Peter Mandelson made it clear there was a risk to the tax payer and some businesses supported by the scheme could go bust.  He said:

We’re making provision for loan defaults … there will be some risk, but less risk than some might imagine because the firms we will be supporting are not high risk.

In addition to this scheme aimed at medium-sized enterprises, the government announced an Enterprise Finance Guarantee Scheme securing a further £1.3 billion of bank funding for smaller businesses with a turnover up to £25 million.

Finally, a Capital for Enterprise Fund will include £50 million from the government supplemented by £25 million from the banks to buy shares in growth businesses that need to convert debt into equity.

Phil Orford, chief executive of the Forum of Private Business, expressed the view of many by welcoming the package of support, but added:

… it must be followed up by longer-term measures to support small businesses and stimulate the economy, including tax cuts and similar strategies to boost struggling sectors.

Meanwhile the Federation of Small Businesses reported that more than a third of its 210,000 members had to dip into savings to the tune of £900 million in order to survive recent months without credit.  It also reported that overdrafts had been reduced by £100 million in October/November last year.

FSB chairman, John Wright, said:

The onus is now on bank branch managers to actively promote this money to its small business customers to ensure their survival and the revival of the economy.

The Conservative party argued, however, that much more was required to support credit to SMEs.  It reiterated its proposals of a week ago that a £50 billion stimulus package was in order.

Others including the Liberal Democrats wondered why additional guarantees were being offered to the banks on top of the huge sums taken from tax payers’ pockets at the end of last year.

Whatever the specifics some kind of action in the face of a dramatic downturn is clearly required to support UK small and mid-sized businesses.  Whether it will be enough, remains to be seen.

Details of the relevant support schemes can be found at the Business Link website.

[Picture credit: Johny hanging head down from the tree, licenced from Flickr]