Memorandum submitted by BERR
REAL HELP WITH FINANCE
I am today launching a new package of support
to address the cash flow, credit and capital needs of businesses.
The package provides:
— £1 billion of guarantees supporting
£1.3 billion of lending to smaller businesses;
— Up to £10 billion of guarantees
supporting £20 billion of working capital; and
— £75 million capital (£50
million from HMG and £25 million from banks) fund to invest
in businesses who need equity or quasi equity.
The package operationalises and builds upon
the commitments we made in the Pre-Budget Report.
ENTERPRISE FINANCE
GUARANTEE
In the PBR, the Chancellor announced a £1
billionn Small Business Finance Scheme. Today, this goes live
as the Enterprise Finance Guarantee.
This 75% guarantee for loans will support bank
lending, of three months to 10 year maturity, to businesses with
a turnover of up to £25 million who are currently not easily
able to access the finance they need. This will enable them to
secure loans of between £1,000 and £1 million through
the government guarantee, available up to 31 March 2010.
The guarantee will be available through the
following high street banks from today—Barclays, Clydesdale/Yorkshire
Bank, HBOS, HSBC, Lloyds TSB, RBS/Natwest and Northern Bank. It
will become available from other lenders if they wish to apply.
WORKING CAPITAL
SCHEME
In the PBR, the Government also announced a
working capital scheme for smaller exporters. Based on the risk
analysis we have done since that announcement we believe that
the model can be expanded for working capital guarantees for all
non-financial firms of turnover of up to £500 million. So
the Government is today ready to make available to banks guarantees
of up to £10 billion, by guaranteeing up to 50% of working
capital on a £20 billion portfolio of loans.
Banks are invited to submit their portfolio
of existing and projected new or refinance loans for approval
under the guarantee. We have received declarations of interest
by Barclays, HSBC, Lloyds TSB and RBS. With the support of participating
banks, we hope the first £1 billion guarantee tranche of
the scheme should be operational by 1 March. Use of this facility
will of course be subject to final terms guaranteeing value for
money.
By guaranteeing portfolios of working capital
facilities, this package will release capital held by the banks
against these portfolios. The banks have agreed they will make
commitments to re-deploy this capital in order to increase all
types of lending above their current plans, to businesses with
a turnover of less than £500 million. The guarantee will
ensure banks do not reduce or withdraw working capital lines on
renewal which, being short term, can be easy to cut. It will also
ensure that there is new capacity by banks to lend to UK businesses,
who are suffering from the withdrawal of certain lenders from
the market.
CAPITAL FOR
ENTERPRISE FUND
In the PBR, the Chancellor announced a £50
million fund to convert businesses' debt into equity. Government
is announcing today that this Capital for Enterprise Fund will
provide £75 million of equity, made up £50 million of
Government funds and, subject to contract, an additional £25
million from Barclays, HSBC, Lloyds TSB and RBS (providing £6.25
million each).
The purpose of the fund will be to provide equity
and quasi equity of £250,000 to £2 million for companies
under the EU SME definition, ie of turnover of up to €50
million, who have viable business models and growth potential
in need of long term capital. The scheme will appoint fund managers
in February. My vision is for this fund and the £280 million
Enterprise Capital Fund programme to create the basis of a future
Industrial and Commercial Finance Corporation or, as it was later
known, 3i. As I said in my lecture at the RSA on 17 December,
this approach is vital if we are to realise our ambition of streamlining
existing regional plans into one coherent vision focused on promoting
long term economic growth.
These facilities can be accessed via the banks,
and in the case of the Enterprise Finance Guarantee and the Capital
for Enterprise Fund through a readily available website www.businesslink.gov.uk/realhelp/finance.
The website provides details including contact names and numbers
for each bank and for the local Business Link.
TIME TO
PAY
Businesses experiencing cash flow difficulties
can also get help from the HM Revenue & Customs (HMRC) Business
Support Service. Businesses worried about being able to meet tax,
National Insurance, VAT or other payments owed or coming due to
HMRC can call the Business Payment Support Line, seven days a
week, on 0845 302 1435.
HMRC staff will review discuss temporary options
tailored to the business needs, such as arranging for payments
to be made over a longer period. HMRC will not charge additional
late payment surcharges on payments included in the arrangement,
although interest will continue to be payable on those taxes where
it applies. This is one more way in which Government is providing
real help for businesses to manage their cashflow and free up
working capital they need.
CREDIT INSURANCE
The Government is committed to targeted support
for businesses to help them through the current economic climate.
I am aware that reduction of credit insurance can exacerbate financial
difficulties already being felt by firms. My Department is discussing
with trade credit insurance providers a government scheme to help
companies affected by reductions in their credit insurance. There
will be a further announcement on this as we progress.
The Government will continue to support and
provide funding and capital to the bank system to ensure that
banks are able to support businesses. Small businesses are the
lifeblood of the economy—employing 60% of the private sector
workforce and contributing over 50% of UK turnover. We remain
committed to doing everything we can to help them through the
current economic difficulties.
14 January 2009
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