Member Article

National Loan Guarantee Scheme welcomed by ACCA

The ACCA has welcomed the Government’s announcement of the National Loan Guarantee Scheme, which could prove an attractive option for SMEs looking to access finance.

The scheme allows banks to raise up to £20bn of funding guaranteed by the Government to lend directly to smaller businesses, with a turnover of up to £50m, at a lower cost than would otherwise be the case.

It applies to loans, hire purchase and leasing, and will reduce the interest rates of bank loans under the scheme by a full percentage point.

The ACCA believes that this 1% cut could have a significant impact on the money a small business has to repay during the lifetime of loan, but also warns SMEs that rates on NLGS loans may vary between banks as they operate their own lending models.

The move is intended to drive investment as research from the SME Finance Monitor shows that 22% of those that would have liked to apply for loans but did not have, have been put off by the price of credit, among other things.

Andrew Leck, head of ACCA UK, says: “The simple fact is that SMEs are still unable to invest the amounts needed for a sustainable recovery and growth is by no means assured in 2012.

“ACCA is well aware of the commercial barriers SMEs face and that a number of linked initiatives are required to improve investment for them.

“Our analysis suggests that a significant number of businesses – up to 40,000 – could potentially be encouraged to apply for loans who otherwise would have not; some more, maybe 5,000 at most, that would previously have been offered a very high interest rate and rejected the loan altogether might now be offered a more reasonable rate.”

According to the SME Finance Monitor, the typical loan taken out in the past year had an interest rate of 5.3% for fixed rate loans and 3% over the base rate for variable rate loans.

Mr Leck added: “Of course, interest is only part of the cost involved in taking out loans. Two thirds of all SMEs that took out or renewed a loan in the past year paid some kind of fee and more SMEs objected to the fees they were offered by their banks than the actual interest rates.

“We would urge SMEs to familiarise themselves with the NLGS; their accountant should be able to explain whether they are eligible and what they will have to do to benefit from this opportunity.”

Noble Francis, Economics Director of the Construction Products Association, also commented on the announcement.

He said: ’Although the major banks have clear targets for lending under Project Merlin, lending to SMEs has in fact fallen over the past year.

“Therefore, any measure to address this is welcome, as SME growth is vital to sustained economic recovery.

“The loan guarantee scheme announced today will help boost the cost and availability of finance for the major banks involved in the scheme, but this must be passed on to SMEs which are critically dependent upon lending.

’The Association has been asking the chancellor for increased lending to SMEs for a considerable period of time and it is encouraging that government is listening to business.

“However, although this is a step in the right direction, more needs to be done to ensure that it is not just the banks that benefit from this access to low cost lending, but SMEs as well.”

This was posted in Bdaily's Members' News section by Tom Keighley .