On 20 March 2012 the government launched the National Loan Guarantee Scheme (NGLS) aimed at helping smaller businesses in the UK access cheaper finance.
The scheme allows small and medium-sized enterprises (SMEs) with an annual turnover of not more than £50m to obtain an interest discount of 1% on a loan from a participating bank.
The scheme is opened to all UK businesses, including branches of foreign entities with a genuine business in the UK.
Participating banks can access to up to £20bn of unsecured loans guaranteed by the government. This enables them to borrow at a cheaper rate and then pass on the entire benefit to smaller businesses through cheaper loans.
Participating banks are able to offer NLGS discounts on new-term loans, hire purchase and leasing arrangements. Refinancing of existing facilities where the term or amount has changed is also permitted. The minimum term for a loan is one year.
Overdrafts, revolving credit, invoice finance and business credit cards are excluded from the NGLS and banks will be able to choose, subject to the scheme rules, which products will be offered.
Businesses should contact the relationship managers at participating banks to apply. The application process will be the same as for regular loans and the banks’ usual lending conditions will apply, including any need for security, like a personal guarantee. Banks will retain the sole responsibility for making decisions on loan applications and will retain the full credit risk for the NGLS loans, accordingly interest rates will vary between banks and individual loans. As the government does not guarantee the loans to businesses or the underlying security, the borrowers will remain fully liable for the repayments of their NGLS loans.
The scheme will fall under the European Commission’s state aid rules and a business will not be able to receive more than 200,000 euros worth of state aid over a three-year period. Some loans under the NLGS will result in state aid and the aid obtained through other schemes like the Enterprise Finance Guarantee (EFG) will count towards the limit.
The government also announced significant tweaks to the EFG, a loan guarantee scheme that helps SMEs that lack the track record or sufficient security to borrow under a normal commercial loan. Under the EFG the government guarantees part of individual loans.
Currently, government guarantees under EFG cannot exceed 13% of each lender’s portfolio of EFG loans. From 2012-13 the limit will increase to 20% and therefore it may encourage more lending to smaller businesses.
The Government has also increased the allocation of funds for the Business Finance Partnership (BFP) from £1bn to £1.2bn. The BFP will make finance available to SMEs through non-bank lending channels. The scheme will be operated by the Treasury and initially will focus on co-investment with private managed funds that lend directly to UK businesses. The government has come up with a shortlist of seven fund managers with whom it intends to invest £700m and will invite further proposals later this year. £100m of the BFP will be allocated for investment in non-traditional lending channels, like peer-to-peer platforms and supply chain financing.
To support the objective of doubling UK exports to £1 trillion by 2020, the government will expand the overseas role of UK Export Finance,the UK export credit agency;so that it will be able to develop finance packages that could help UK exporters secure opportunities identified via the UK Trade and Investment’s High Value Opportunities programme. It will provide temporary private sector office space for new UK exporters in high-growth countries.
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Budget 2012 also welcomed the result of the industry review of non-bank lending chaired by Tim Breedon and will take forward its recommendations over the course of the year.
Finally the government announced that this year it will pilot the introduction of a programme of enterprise loans that will help young people set up and grow their own business.