Mandelson extends ‘real help for businesses’

Business Secretary Lord Mandelson today unveiled a package of measures designed to address the cash flow, credit and investment needs of small and medium businesses.

The support package, which builds upon the commitments outlined in November’s Pre Budget Report, consists of loan guarantees and a new Enterprise Fund aimed at helping companies struggling to access finance for working capital and investment.

The Government measures include:

* A £10bn Working Capital Scheme, securing up to £20bn of short term bank lending to companies with a turnover of up to £500m
* An Enterprise Finance Guarantee Scheme, securing up to £1.3bn of
additional bank loans to small firms with a turnover of up to £25m
* A £75m Capital for Enterprise Fund (£50m from Government augmented by £25m from the banks) to invest in small businesses which need equity

Business Secretary Lord Mandelson said:

“UK companies are the lifeblood of the economy and it is crucial that Government acts now to provide real help to support them through the downturn and see them emerge stronger on the other side.

“We know that some companies are struggling to secure the finance they need, not because of any failure in their business but due to the tougher credit conditions. That is why we have designed a package of measures addressing different forms of credit and providing real help for businesses.”

The Working Capital Scheme is a direct response to the constraint on bank credit available for lending to ordinary-risk businesses with a turnover of up to £500m a year.

The Government will provide banks with guarantees covering 50 per cent of the risk on existing and new working capital portfolios worth up to £20bn.

The guarantee will secure up to £20bn of working capital credit lines for companies – ensuring they are safe from reduction or withdrawal.

In addition, the guarantee will free up capital which the banks must use for new lending as a condition of this scheme. This is lending that would otherwise not have been provided.

The Enterprise Finance Guarantee aims to help smaller, credit-worthy companies which might otherwise fail to access the finance they need for working capital or investment finance due to the current tight lending conditions.

The Government will provide £1bn of guarantees to support to £1.3bn of bank lending to smaller firms with an annual turnover of up to £25m, which are looking for loans of up to £1m for a period of up to 10 years.

The guarantee, available through high street banks, will apply to loans and can also be used to convert existing overdrafts into loans to enable businesses to free up their current overdraft facilities to meet working capital demands.

To help businesses raise new long-term finance, the Government will also offer to invest in viable companies which have high levels of existing debt through a new £75m Capital for Enterprise Fund. Banks are contributing to this fund.

The fund, to be managed externally, will provide long term capital to businesses which have exhausted traditional forms of finance. Companies can then use this capital to invest in and grow their business.

Lord Mandelson also confirmed today the Government is discussing with trade credit insurance providers a Government scheme to help companies affected by reductions in their credit insurance.

In order to help businesses identify their financial needs, the Government is today launching a new “one stop shop” easy-to-use web portal. The portal, on the businesslink.gov website, will direct companies to the most appropriate form of support and help them ascertain their eligibility for a range of government support.

“The Government’s guarantee for bank lending to small and medium sized businesses should enable businesses to survive the downturn, but more must be done to revive consumer confidence,” Sue Robinson, Director of the Retail Motor Industry Federation commented.

However Robinson believes that steps need to be taken to ensure that consumer confidence is revived at the same time; ”Consumers want assurance from the Government that jobs are secure, that disposable income will not decline further, that general economic conditions will start to improve, and that credit will become more generally available. Once this happens consumers will return to normal buying patterns, and it is this that will secure the future for business in the long term.”

For business support, Robinson believes that there are a wide-range of options open to Government, especially for businesses in the retail motor sector: ”Many retail motor sector businesses could be helped by the abolition of the new rules on Vehicle Excise Duty (VED) refunds, as well as higher and more realistic Business Rate Relief on empty business premises. The introduction of a Scrappage Scheme that would encourage owners to dispose of older and more polluting vehicles, in favour of newer vehicles would help stimulate the new car market.”

Robinson adds: “We are in regular contact with Government on these issues and more, and will continue to advocate these measures, as they benefit business.”

Author: Faye Sunderland, January 14, 2009
Filed under: General interest