By Simon Miller
Three of the top four UK banks have signed up to the Chancellor of the Exchequer George Osborne's credit easing scheme.
Barclays, Lloyds TSB and RBS have been joined by Santander (and in principle Aldermore) in the National Loan Guarantee Scheme (NLGS) that allows small businesses with an annual group turnover of up to £50m access to cheaper finance.
However, HSBC has not joined the scheme as it said it relies on deposits to proved loans rather than the wholesale funding market.
The government said that the UK’s budget credibility in financial markets allowed it to provide up to £20bn of government guarantees on unsecured borrowing by banks, enabling them to borrow at a cheaper rate. Around £5bn 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 is not taking on the credit risk of loans made under the scheme. The banks retain the credit risk and their usual lending and credit parameters apply.
The scheme comes days after Lloyds TSB's chief executive Tim Breedon recommended the development of the UK domestic bond market to improve non-bank funding vehicles for small to medium companies (SMEs).