The Chancellor has launched the National Loan Guarantee Scheme (NLGS), helping smaller businesses across the UK (with an annual group turnover of up to £50 million) access cheaper finance.

The Government will provide up to £20 billion of government guarantees on unsecured borrowing by banks, enabling them to borrow at a cheaper rate. Around £5 billion 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 one percentage point compared to the interest rate that they would otherwise have received from that bank outside the scheme.

The banks currently participating in the scheme are: Barclays, Santander, Lloyds and RBS. Aldermore have also agreed, in principle, to join 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 thus not taking on the credit risk of loans made under the scheme. The banks retain the credit risk and therefore their usual lending and credit parameters will apply.

Lending under the Government’s flagship small business lending scheme, the Enterprise Finance Guarantee (EFG), has fallen to another new record low according to independent finance provider Syscap.

The value of loans offered under the EFG scheme has dropped further to £77.8 million in the last quarter (to December 31st) down 24 per cent from £102.8 million during the same period last year.

The Enterprise Finance Guarantee scheme was designed to encourage banks to provide finance to SMEs with a turnover of less than £25 million. Under the EFG scheme the Government guarantees 75 per cent of the value of lending in an individual loan to a business.

Small companies borrowing under the scheme need to pay their bank interest and other charges and the Government an additional fee for using the scheme.

The poor performance of the scheme has prompted the Chancellor to change the focus of the scheme from encouraging banks to lend to the smallest class of companies with a turnover of under £25 million. Instead loans under the scheme are now available to bigger businesses with a turnover of up to £41 million.

Syscap says that opening the scheme to bigger companies may crowd out smaller companies.

Philip White, chief executive of Syscap, explained: “The smaller the company the harder it is for that company to get bank funding. The EFG scheme’s attraction was that it targeted just those smallest companies. Throwing the doors of the scheme open to bigger companies might lead to more lending in total but less lending to the smallest companies.”

“The failure of the EFG scheme combined with the cancellation of Project Merlin raises the question as to when the Government will find a practical way of substantially increasing bank lending to smaller businesses.”

Syscap says that the EFG scheme would have worked better if it had included leasing, the traditional way companies fund business investment and one of the few areas of business funding that is currently growing.

“Allowing lease finance into the EFG scheme would give a major boost to the availability and affordability of leasing,” said White.

“Making lease finance more readily available would mean businesses can make the investments they need now rather than postponing them indefinitely.”

Barclaycard Global Commercial Payments has launched a new cashback corporate card to help small business customers make the most of their business spending.

When using the card for business spend, such as purchasing office stationery and supplies, computer equipment or professional services, small business cardholders will earn three per cent cashback.  In addition, cardholders will earn one per cent cashback on fuel purchases and 0.5 per cent cashback on all other purchases.

Dennis Bauer, managing director of global commercial payments, said, “We’re giving small business customers a more rewarding way to carry out their normal business spending with this card, plus it is a great way to manage purchasing decisions.  Barclaycard’s corporate card can also help smooth out short-term fluctuations in business cash-flow and give small businesses the option to pay over a longer term if required.”

He continued, “This launch shows Barclaycard as a market leading commercial payments company. I’m very proud of the way we develop products that help our small business customers achieve their business goals.”

Following recent insolvency figures announcing a rise in company insolvencies, Business Debtline, the free, independent advice service for small and micro businesses, is warning that there are many thousands more small businesses across the UK struggling with their debts.

Last year Business Debtline spoke to a record number of small business owners and directors. In all, Business Debtline advisers answered nearly 38,000 calls – a highest number in the service’s history – from 26,000 small businesses, of which 6,181 had debts of over £50,000.

Nicola Connop spokesperson for Business Debtline said: “Our team of advisers speak to thousands of struggling small businesses every month. Many of these businesses have been hit by the tough economic climate, with lots of callers pointing to trade shortfalls, late payers and supplier issues as the reason for their difficulties. It is clear to us that the difficulties faced by small businesses extend far beyond the insolvency figures announced today.

“Whilst insolvency can seem like a daunting process, there are occasions where it will be the best option, both financially as an individual, and also with a view to trading again in the future. Business Debtline can help small businesses identify when insolvency might be a sensible move. Where it isn’t the right option, we can help small businesses get back on their feet.”

Business Debtline is open 9am – 5:30pm Monday to Friday. Call 0800 197 6062 for free, independent and confidential advice.

Total bank lending to firms outside of finance and real estate must more than double in order to meet the investment needs of the UK economy over the next decade, says a new TUC report.

The TUC report Banking after Vickers says that government has identified £450 billion-worth of physical investment, vital to the UK over the next decade. But with the current stock of bank loans to non-financial firms (excluding real estate) at just £322 billion, banks would need to more than double their current level of lending to meet UK investment needs. This simply won’t happen without radical reform of the banking sector, says the TUC.

Banking after Vickers says that since 2008 the main focus of debate on banking has been preventing a repeat of the crash and subsequent taxpayer bailout, addressed by the Vickers Commission, and the remuneration of top bankers.

But with the UK’s growth prospects dependent on greater investment and access to credit, particularly for SMEs, the report argues that reforming the banking sector so that it better supports the real economy is the most vital banking issue facing the UK.

The report sets out four challenges facing the UK banking sector: low investment, SMEs, sectoral and geographical rebalancing of the economy and green growth.

Banking after Vickers shows that the UK’s level of investment has been either the lowest or second lowest in the G7 for 30 years, and that the banking sector has a poor track record of lending outside of real estate and finance.

While credit easing and the Green Investment Bank are positive first steps towards encouraging more lending, they fall well short of the level of investment the UK economy needs, says the TUC.

TUC General Secretary Brendan Barber said: “Much of the media and political debate around banking has been on top bonuses and preventing another financial crash.

“But while these are both important issues, people are more concerned about jobs, better wages and healthier businesses – and banks have a vital role to play in creating all this.

“Decades of under investment, compounded by banks’ poor track record of lending outside of real estate and finance, have left the UK economy dangerously lopsided. Our economy is far too focused on finance and banking, and in the South East.

“Greater lending to SMEs and support for green investment is vital to our future economic prospects but our current banking system is woefully ill-equipped to lend.

“Bold new ideas are needed to reform the banking sector so that it returns to its proper place as the engine of wider economy growth, and not as the cause of an economic depression.”