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Government introduces bank lending scheme

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The Government are expected to announce in today’s budget a £20bn scheme to encourage bank lending to small and medium sized enterprises.

The scheme will give them the chance to grow their company into a success which will be helped by banks lending money to them.

Businesses will be able to access loans with interest rates 1% lower than those outside of the National Loan Guarantee Scheme.

Four major banks around the UK have already signed up for the scheme with more expected to join as it progresses. Firms will have to have an annual turnover of £50 to participate in the scheme.

Barclay's and RBS are expected to be the biggest user of the scheme to issue £1.5bn of government-backed bonds which will provide loans to small businesses. Lloyds are likely to be the third company which uses the scheme followed by Santander.

Discounted loans will be available and the scheme is expected to ‘rekindle confidence, stimulate demand and encourage investment’.

However not all banks are joining the scheme with many high profile banks declining to be involved as they would not be able to participate on commercially viable terms. 

John Longworth, British Chambers of Commerce Director General, said: “The current economic challenges mean that the government must look at new and innovative ways of providing credit to viable firms.

“While credit easing is a step in the right direction, it is not a panacea for all the problems faced by businesses trying to access finance.

“The National Loan Guarantee Scheme will make some loans more affordable. But it will not help the smaller, younger, and high-growth firms that have trouble getting credit in the first place.”

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By Amanda Bainbridge