The government-owned British Business Bank will provide up to £100m in funding for loans to small businesses affected by the collapse of construction and outsourcing firm Carillion, it announced today.
The backing, which will be delivered through high street banks, aims to enable smaller firms which may have suffered losses from the Carillion failure to access cheaper finance.
Contractors to Carillion can apply for an enterprise finance guarantee, through which 40 UK lenders are protected from losses if borrowers default. The British Business Bank will cover 75 per cent of any losses sustained by the banks, in an effort to make them more willing to lend.
Carillion's collapse last month has already led to 377 job losses among those directly employed by the firm, but some analysts fear the knock-on effects on the many small companies which supplied the former FTSE 250 business.
Meanwhile, other firms in the outsourcing sector, including Capita, have come under pressure from short sellers in recent days.
The £100m funding comes after similar pledges of £225m in total from some of the UK's biggest banks, including Royal Bank of Scotland, Lloyds, and HSBC. It only applies to firms with turnover below £41m.
Business secretary Greg Clark said: "We want to signal very clearly to small and medium-sized businesses who were owed money by Carillion that they will be supported to continue trading.
"The banks have responded to my request by agreeing to support businesses and individuals affected. This further guarantee will help those businesses who may not be able to provide the usual security for a loan."
British Business Bank chief executive Keith Morgan said: "The enterprise finance guarantee is an important option for smaller businesses who need access to finance, but may not be able to meet a provider’s normal security requirements.
"To help in these exceptional circumstances, we have designed additional flexibility into EFG that could be particularly suitable for firms in the Carillion supply chain. We would encourage lenders to work with their customers to use these new flexibilities to meet their needs."