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Tuesday 29th November 2011 saw the introduction of the National Loan Guarantee Scheme, the credit easing which has been talked about since the Conservative Party conference. The scheme has been introduced to lower the cost of borrowing for Small and Medium Enterprises with a turnover below £50 million, with £20 billion of credit being made available. However, there are still credit scoring measures to overcome and the actual saving to a small business may not be as much as originally believed.

Investors in the scheme will have assurance from the government that their money is safe, but only by guaranteeing the banks. If a bank collapses, the supplier of the investment will be guaranteed their money back by the government. The repayment of the loan by SMEs won’t be underwritten by the government, which leaves small businesses still facing harsh credit scoring procedures. As the suppliers have their investment guaranteed by the government, they will charge a lower rate of interest, which the banks will pass on to SMEs.

The value of the reduction in interest will vary. For instance, a company borrowing £5 million at six percent rate of interest rather than a seven percent interest rate, will save £50,000 over a year. However, a small business borrowing £50,000 at an interest rate which is lowered by one percent, will save £500 over 12 months.

The move by the government to introduce the scheme confirms they are determined to open up finance available to SMEs, encouraging investment and growth among UK business.

About The Author

Gary Fields

Content Writer working alongside our expert accountants to bring you the latest Tax and Accounting news.

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