Here’s a look at how the NLGS will work, why the government has introduced it and which of the nation’s struggling businesses will be eligible for these cut-cost loans.
What is the scheme about?
The NLGS plans to stimulate the economy by giving small businesses access to more competitive and attractive loans over the next two years.
The government will guarantee £20billion of banks’ borrowing, allowing lenders to borrow more cheaply on the wholesale market than normal. The banks will then have to pass on the cheaper funding caused by offering lower interest rates on small business loans.
Barclays, Lloyds, Royal Bank of Scotland, Aldermore and Santander have already signed up to be a part of the NLGS. HSBC and The Co-operative Bank have decided not to sign up for the scheme because they believe it would not be commercially viable.
The Treasury will decide what share of the £20billion worth of guarantees each bank will receive, but there will be a minimum allocation of £100million per bank.
In the first phase of the scheme, only around £5billion of the NLGS funding is being made available. Subsequent funding, administered by the UK Debt Management Office, will be determined by demand.
An NLGS discount can be offered on new term loans, hire purchase and leasing arrangements, but each bank will determine what products it wants to offer under the scheme.
Which businesses will be eligible?
The main criteria for eligibility are that your business’ annual turnover must not exceed £50million. Loans will then be issued on a first-come, first-served basis.
John Cridland, director general at the Confederation of British Industry (CBI) said the scheme should help to bring the cost of loans down for small businesses, adding that it was a clear sign from the government that it is looking to address small business funding.
The Federation of Small Businesses has also welcomed the scheme, saying that credit for small businesses has previously been deemed unaffordable.
Its national chairman, John Walker, said: “We are pleased that credit easing is now available for small firms to use. Recent FSB research indicated that around 60% of small firms believed that credit is unaffordable and so this scheme should help reduce that burden.
“What we now need to see is clear communication to small firms and bank branch staff so that everyone is aware of it and how it will work so that businesses can benefit from it.”
However, John Longworth of the British Chambers of Commerce welcomed the credit-easing scheme but said it won’t be any good for smaller firms. “The National Loan Guarantee Scheme will make some loans more affordable. But it will not help the smaller, younger, high-growth firms that have trouble getting credit in the first place.”
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