(14 January 2009)

Business Secretary Lord Mandelson today unveiled a package of measures designed to address the cash flow, credit and investment needs of small and medium businesses in the UK. The support package, which builds upon the commitments outlined in November's Pre Budget Report, consists of loan guarantees and a new Enterprise Fund aimed at helping companies struggling to access finance for working capital and investment. Critics argue that funding where the Government guarantees 75% of the loan, with banks covering the remaining 25%, will only encourage high risk lending with taxpayers bearing the burden.

The Government measures include:

* A £10bn Working Capital Scheme, securing up to £20bn of short term bank lending to companies with a turnover of up to £500m

* An Enterprise Finance Guarantee Scheme, securing up to £1.3bn of additional bank loans to small firms with a turnover of up to £25m

* A £75m Capital for Enterprise Fund (£50m from Government augmented by £25m from the banks) to invest in small businesses which need equity

Business Secretary Lord Mandelson said:"UK companies are the lifeblood of the economy and it is crucial that Government acts now to provide real help to support them through the downturn and see them emerge stronger on the other side. We know that some companies are struggling to secure the finance they need, not because of any failure in their business but due to the tougher credit conditions. That is why we have designed a package of measures addressing different forms of credit and providing real help for businesses."

The Working Capital Scheme is a direct response to the constraint on bank credit available for lending to ordinary-risk businesses with a turnover of up to £500m a year. The Government will provide banks with guarantees covering 50 per cent of the risk on existing and new working capital portfolios worth up to £20bn. The guarantee will secure up to £20bn of working capital credit lines for companies - ensuring they are safe from reduction or withdrawal.

In addition, the guarantee will free up capital which the banks must use for new lending as a condition of this scheme. This is lending that would otherwise not have been provided.

The Enterprise Finance Guarantee aims to help smaller, credit-worthy companies which might otherwise fail to access the finance they need for working capital or investment finance due to the current tight lending conditions.

The Government will provide £1bn of guarantees to support to £1.3bn of bank lending to smaller firms with an annual turnover of up to £25m, which are looking for loans of up to £1m for a period of up to 10 years.

The guarantee, available through high street banks, will apply to loans and can also be used to convert existing overdrafts into loans to enable businesses to free up their current overdraft facilities to meet working capital demands.

To help businesses raise new long-term finance, the Government will also offer to invest in viable companies which have high levels of existing debt through a new £75m Capital for Enterprise Fund. Banks are contributing to this fund.

The fund, to be managed externally, will provide long term capital to businesses which have exhausted traditional forms of finance. Companies can then use this capital to invest in and grow their business.

Lord Mandelson also confirmed today the Government is discussing with trade credit insurance providers a Government scheme to help companies affected by reductions in their credit insurance.

In order to help businesses identify their financial needs, the Government is today launching a new "one stop shop" easy-to-use web portal. The portal, on the businesslink.gov website, will direct companies to the most appropriate form of support and help them ascertain their eligibility for a range of government support. The online portal can be found at www.businesslink.gov.uk/realhelp/finance