THE CHANCELLOR officially launched his flagship credit easing scheme in yesterday’s Budget, making £5bn of guarantees available for banks to pass on a subsidy to small businesses.
But it also emerged that some banks are setting a minimum floor of £25,000 for loans available through the scheme, cutting out access for many “micro-businesses” that the government wants to target.
Barclays branded its participation in the scheme as a “cashback finance” discount and said: “If you take out a business loan or commercial mortgage of more than £25,000 with us, you could be eligible to receive upfront cashback.”
The value of the discount on the interest charged on the loan will be one per cent over five years, the bank said, meaning it will be less than one per cent up front.
The policy works by making banks’ borrowing costs cheaper and requiring them to pass the subsidy on to small businesses in discounted loans. In effect, the government is guaranteeing a portion of lenders’ debt on the condition that they pass most of the benefit on to small businesses, with the rest paid back to the Treasury.
The aim of the policy is to get the cost of borrowing to small firms down by one per cent, but there is no target or public estimate for what increase in borrowing could result.
Most business leaders and bankers see the effect as likely to be marginal. The National Institute of Economic and Social Research (NIESR) said the measures “do not address the major factor depressing business investment this year: a lack of demand”.
HSBC is not participating in the scheme because its cost of borrowing is already so low that an extra government guarantee would make little difference.