Struggling small and medium sized businesses can breathe a sigh of relief after a Government scheme offering business loans was given the go ahead by European Commission (EC).
The scheme is designed to allow small and medium sized enterprises (SMEs) freedom to apply for credit, which should enable them to stay afloat during these harsh economic times. The scheme is split into two sections:
Speaking of the scheme, a spokesperson from HM Treasury, said: “Now that state aid approval has been granted, we are on track to launch the scheme early next week.”
However, the money will not come from the Government; instead, it will come from the banks, just like any other loan. But the difference is that the capital is guaranteed, therefore giving SMEs more of a chance of getting a loan agreed and at a lower rate.
Lenders to the banks will have a lower interest rate in this scheme, which will be passed onto the SME who take out a loan. Although it will only be around the 1 per cent mark, it will still be beneficial to any small and up and coming business struggling to pay rent on their commercial property.
Speaking of the scheme, Vice-President of the Commission responsible for the competition policy, Joaquín Almunia, stated: “Facilitating SMEs access to finance is a Commission priority to overcome the crisis. The National Loan Guarantee Scheme will reduce borrowing costs for SMEs thanks to a State guarantee, without unduly distorting competition.”
However, although the scheme is designed to help SMEs with struggling finances, will giving them access to more debt really be beneficial? Jonathan Davis, who is a Managing Director of a wealth management company, has his doubts. “I am highly sceptical of any scheme to create more lending. It is more and more lending which put us in economic depression in the first place. If you think we are not in depression, think again.
“Sure, it will help some but not many. It’s a sop to the baying crowd but in reality it does nothing to sort the root problems of our economy for businesses which include high prices and costs of running businesses, low or negative growth, high debts and high business rates.”