Under pressure from all sides, the Government recently unveiled three schemes to address the liquidity needs of SMEs and kick-start banks into lending to their SME customers again. The schemes are:

  • a £10 billion working capital scheme;
  • a £1.3 billion enterprise guarantee scheme; and
  • a £75 million enterprise fund.

Working capital scheme

The Government will, subject to EU State aid clearance, underwrite up to 50 per cent of new and existing loans to businesses with an annual turnover up to £500 million (which means all but the largest 350 UK companies). By guaranteeing the loans and therefore shouldering the risk, the package should, in theory, free up extra capital for the banks to pass onto other corporate borrowers.

Enterprise finance guarantee scheme

This scheme is aimed at smaller, medium-risk companies in sectors seen as vital to rebuilding the economy that have an annual turnover of up to £25 million and are looking for loans of up to £1 million over a period of up to ten years. The scheme is available through the banks and means that the Government will guarantee up to 75 per cent of the loans (whether these are new loans, refinancings or conversions or part or all of an existing overdraft facility) thus freeing up working capital and increasing liquidity. To date, approximately £40 million has been offered under this scheme. Capital for enterprise fund This £75 million fund will allow heavily-indebted companies to swap their debt for equity where more traditional forms of finance have been exhausted. £50 million will come from the Government and the remainder from banks.

The measures have received a lukewarm response - the general consensus is that they represent a step in the right direction but are not the panacea that had been trailed by the Government. Clearly more still needs to be done to help SMEs!

If you want to know whether you are eligible for any of the schemes, click here.