Wednesday, 08 August 2012 14:16
Interest rates on loans under £1 million are actually higher than last year.
The Government’s National Loan Guarantee Scheme (NLGS) is being wound down having had no perceptible impact on small business lending, says Syscap.
The NLGS, part of the Government’s credit easing programme, was originally planned to underwrite up to £20 billion in lending with the aim of lowering the interest rate of small business loans made under the scheme by 1 per cent. However, the Government has confirmed that the scheme is to be wound down after only lending around £2.5 billion to businesses.
Syscap says that interest rates on smaller business loans remained unchanged by the NLGS. The average interest rate on loans under £1 million were 3.8 per cent in the month the scheme was launched (March 2012) and are still 3.8 per cent as the scheme is being shut (June 2012 – most recent data). The average interest rate on bank loans under £1million was actually lower a year ago at 3.61 per cent.
Says Philip White, Chief Executive of Syscap: "The NLGS is the latest in the series of failed initiatives to get more conventional bank lending to small businesses. Perhaps the lesson the Government should draw is that you can’t fix conventional bank lending overnight. Instead much more help should be given to areas of the finance market that are increasing funding for businesses – which are working properly.
Asset finance is one area, in particular, where funding for businesses is growing but where the Government has so far given only token support."
Funding for businesses from asset finance has increased by 12% over the last year to £20.5 billion – meanwhile bank lending to businesses is still falling at 3 per cent per year.
Syscap says that the NLGS was the third in a succession of major Government initiatives aimed at increasing lending to small businesses. Adds Philip White: "Both Project Merlin and the Enterprise Finance Guarantee scheme fell short of expectations because they focused on conventional bank lending.
"If the Government shifted its support to the leasing sector – promising to underwrite more asset finance deals – then I am certain that much more asset finance would be available to businesses and at cheaper rates."
Newer news items:
Older news items: