Business secretary Lord Mandelson today said the government will guarantee as much as £20bn of credit to help keep medium-sized companies afloat during the recession.

Business secretary Lord Mandelson today said the government will guarantee as much as £20bn of credit to help keep medium-sized companies afloat during the recession.

The support package is the government’s latest effort to mitigate the effects of the global credit crisis and builds on the £1bn Small Business Finance Scheme outlined in November’s Pre Budget Report.

Under new proposals, the government will open a £1bn fund that banks will be able to access in order to guarantee loans for small firms with a turnover of up to £25m.

A separate £10bn Working Capital Scheme will secure up to £20bn of short term bank lending to companies with a turnover of £500m, in addition to a £75m Capital for Enterprise Fund to aid firms that need equity.

The announcement follows calls of support from leading UK companies, including Jaguar Land Rover (JLR) and JCB, which urged the government to increase spending and make funds available after a wave of job cuts throughout the industry.

The CBI has criticised the government for not doing more to help larger businesses such as JLR, which today announced that it will shed 450 jobs despite Jaguar posting an eight per cent increase in sales compared with 2007.

CBI’s director general, Richard Lambert, said: ‘The scale of the problem goes well beyond what the government has announced today.

‘The impact of a damaged banking system on ordinary businesses has reached a critical stage and although today's package will undoubtedly help many hard-pressed firms, it is silent when it comes to larger companies.’

While the proposals will be of limited help to large companies, small manufacturing and engineering firms are expected to benefit considerably.

The Federation of Small Businesses (FSB) believes that this will be a life-line to struggling firms and is calling for the fund to be increased as the economy recovers.

FSB national chairman, John Wright, said: ‘The onus is now on bank branch managers to actively promote this money to its small business customers to ensure their survival and the revival of the economy.

‘The banks now have no excuses and we will be encouraging our members to apply for these funds while keeping a beady eye on the banks through our Bank Watch Scheme to ensure that they are lending actively and fairly.’

EEF, the industry body for engineering and manufacturing employers, welcomed the long-awaited plans, however warned that vital parts of the supply chain should be targeted in order to protect skilled jobs.

Steve Radley, chief economist at the EEF, said: ‘This package goes some way to kick-starting credit markets and helping businesses access the finance they need.


‘By underwriting loans, the government scheme could provide welcome breathing space for firms faced with cash-flow problems after the credit markets dried up.’