Posted by

Steve Hughes, Economic Policy Adviser

20 Mar 2012

In a nutshell, the government will guarantee bank funding which will translate into a one percentage point reduction in the cost of borrowing for viable businesses. In other words, finance will be cheaper than it otherwise would have been. At launch, five banks had signed up to offer these loans: Barclays, Santander, Lloyds, RBS and the specialist business lender, Aldermore.

It is entirely right that government should explore and new and innovative ways of addressing the access to finance problem. But now that the scheme has been launched the test comes with its practical implementation. Bank staff that interact with businesses at branch level need to understand how these loans fit into the different financing options available to firms, and how these relationships operate will be crucial to the success of the credit easing initiative. It is also worthwhile noting that this is not a panacea for all the problems associated with access to finance, and younger, smaller, high growth firms still find it difficult to get any type of credit facility. More radical policy interventions, such as a state backed SME lender, could be implemented to address this gap in business funding.          

You can find more details about the scheme on the Treasury's website here