25th June 2012
Small business borrowing costs stubbornly high despite National Loan Guarantee Scheme
Interest rates on loans under £1m higher than
The Government's National Loan Guarantee Scheme has not led to
any significant reductions in the overall cost of loans for small
businesses, says Syscap, a leading independent finance
Syscap comments that interest rates on business loans under £1
million fell only 0.08%, from 3.79% to 3.71% in April 2012, despite
the introduction on March 20 of the National Loan Guarantee Scheme
(NLGS). Interest rates on these loans are actually higher than the
3.62% a year ago (April 2011).
The NLGS, part of the Government's credit easing programme, will
underwrite up to £20 billion in lending in order to lower the
interest rate of small business loans made under the scheme by
Says Philip White, Chief Executive of Syscap: "The NLGS has not
yet had the hoped-for impact on borrowing costs for small
businesses as a whole. That will come as a real disappointment to
the small business community."
"This may change as more banks introduce their NLGS loans, but
at the moment, it's difficult to identify any positive changes in
the overall small business lending environment."
Nine banks have signed up for the NLGS, although not all have
made discounted loans available. One of these has not yet announced
when it will launch its reduced-rate small business loans, almost
three months after the scheme's launch. One participating bank has
set its minimum loan amount at £25,000, effectively ruling out
loans to the smallest class of businesses.
Syscap says that the NLGS is the third in a succession of major
Government initiatives aimed at increasing lending to small
businesses; Project Merlin and the Enterprise Finance Guarantee
Scheme (EFG) are the two launched previous.
Adds Philip White: "Both Project Merlin and the EFG scheme fell
some way short of expectations with the interest rate on small
business loans still higher than it was a year ago and no reversal
in the reduction in lending by banks to SMEs."
The Bank of England says it is planning an estimated £80 billion
'funding for lending' scheme, intended to stimulate bank lending to
businesses. Syscap say that this is a step in the right direction,
but that uncertainty remains over whether this scheme will get new
funding to SMEs.
Continues Philip White: "Banks are not reluctant to lend to UK
businesses as a whole- the problem is centred on lending to SMEs -
this is where interest rates have remained stubbornly high."
Philip White says that whilst efforts to get an increase in
traditional bank lending to SMEs have had patchy success,
alternative financing solutions, such as leasing, are gaining in
popularity amongst SMEs.
Explains Philip White: "Small business loans from banks are hard
to get and are an insecure form of finance compared to
"The leasing sector is increasing the amount of money it
provides to fund business investment. Personally I think the
Government should be building on the successful track record of the
leasing sector over the last year by targeting support there."
*Source: Bank of England
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