Jury out on £10bn SME bailout package

Richard Lambert, CBI director

Richard Lambert, CBI director

The government’s £10bn loan guarantee scheme for small and medium-sized
businesses has been broadly welcomed by business groups and insolvency
specialists, but concerns remain about whether the measures will take effect
soon enough to stop more companies going bust.

Insolvency specialists said the package announced last week ­ including a
plan for the government to guarantee half of £20bn short-term bank loans for
companies with annual turnover up to £500m ­ should ease frozen credit lines.

Yet despite government promises that its package will finally boost bank
lending to struggling SMEs some doubt banks will cooperate.

‘How long will it take for this latest scheme to filter through? ­ for many
companies probably too long ­ and will it really get the banks lending again?,’
asked Alan Tomlinson, partner at insolvency specialist Tomlinsons, which deals
with many of the smaller companies the scheme is aimed at.

The government also said it would be working with trade credit insurers.

One insolvency specialist said the scarcity of trade credit insurance to
cover companies against suppliers defaulting on payments made it ‘terribly
difficult’ to sell a collapsed business as a going concern. Companies that
cannot get insurance on suppliers are often forced to pay for stock upfront,
putting more pressure on finances. Withdrawal of trade credit insurance was
reportedly one of the factors behind the collapse of retailer Land of Leather
last week.

‘It’s always been an issue, but even more so these days. The lack of trade
credit insurance precipitates failures and prevents rescues,’ the IP added.’

Business groups also gave the government loan package a cautious welcome. The
Institute of
Directors welcomed the scheme but said it had reservations. IoD director
general, Miles Templeman said: ‘It remains to be seen whether today’s
announcements prompt banks to loan new money as opposed to repackaging existing
finance, but if the full £10bn is rolled out promptly then these measures have
the potential to ease existing credit pressures.’

CBI director general Richard Lambert added: ‘Although today’s package will
help many hard-pressed firms it is silent when it comes to larger companies.
‘Those businesses at the heart of many vital supply chains face the daunting
prospect of re-financing over £100bn of credit facilities during 2009.’

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