Tax & Accounting News

Government launches new help for businesses

29/01/2009

The government has announced a new package of measures designed to address the cash flow, credit and investment needs of small and medium-sized businesses.

Announced on 14 January by Business Secretary Lord Mandelson, the government package includes:

• a £10 billion Working Capital Scheme, securing up to £20 billion of short-term bank lending to companies with a turnover of up to £500 million

• an Enterprise Finance Guarantee Scheme, securing up to £1.3 billion of additional bank loans to small firms with a turnover of up to £25 million

• a £75 million Capital for Enterprise Fund (£50 million from government plus £25m from the banks) to invest in small businesses that need equity.

Under the Working Capital Scheme, the government will provide banks with guarantees covering 50 per cent of the risk on existing and new working capital portfolios worth up to £20 billion, ensuring these are safe from reduction or withdrawal.

Other key points of the scheme include:

• Banks will submit a portfolio of loans to businesses to the Department for Business Enterprise and Regulatory Reform (BERR). BERR will guarantee up to 50 per cent of the value of the portfolio, securing up to £20 billion of bank lending.
• Banks have been invited to submit their portfolios of existing and projected new or refinance loans for approval and the government has received declarations of interest from Barclays, HSBC, Lloyds TSB and RBS.
• The government hopes the first £1 billion guarantee tranche of the scheme should be operational by 1 March. If successful, the government will make further guarantees up until 31 March 2011.

Under the Enterprise Finance Guarantee, the government will provide £1bn of guarantees to support up to £1.3bn of lending to smaller firms with an annual turnover of up to £25m that are seeking loans of between £1,000 and  £1m for up to ten years.

The guarantee can be used to support new loans, refinance existing loans or convert part or all of an existing overdraft into a loan to release capacity to meet working capital needs:

• Businesses in most sectors will be able to seek loans for most purposes. The principal exclusions relate to businesses in the agriculture, coal, and steel sectors and to the financing of individual export orders.
• The guarantee will be available through Barclays, Clydesdale/Yorkshire Bank, HBOS, HSBC, Lloyds TSB, RBS/Natwest and Northern Bank. It will also become available from other lenders if they wish to apply.
• It will be available up to 31 March 2010.
• The government will guarantee 75 per cent of loans.

To help businesses raise new, long-term finance, the government will also offer to invest in viable companies with high levels of existing debt through a £75m Capital for Enterprise Fund.

The fund will provide long-term capital to businesses that have exhausted traditional forms of finance to invest in and grow their business. Key points of this scheme include:

• The fund is made up of £50 million from government funds and £25 million from Barclays, HSBC, Lloyds TSB and RBS.
• It will be run by professional fund managers. Due diligence is currently being carried out on a number of fund managers and it is expected that they will be in place and ready to begin investing by the end of January 2009.
• Businesses wishing to seek investment from the fund can register an interest by contact the Capital for Enterprise Fund Registration Helpline on 0845 459 9780.

A new web portal has also been launched to direct companies to the most appropriate form of support, and help them check their eligibility for a range of government support, at http://www.businesslink.gov.uk/realhelp/finance

We offer a range of services to businesses seeking support under these government schemes, including cash flow forecasting and preparation of documents to support funding applications. For further information, please contact us.

 

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