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Corporate Finance - Autumn Statement

In Wednesday’s autumn statement, the Treasury announced a number of initiatives designed to boost bank lending to small and medium sized businesses (SME’s) by £900m.  The Government hope these measures will help it reach its target of unlocking £10bn of finance for SMEs by 2017/2018, something which critics argue they are currently failing to achieve.

The Treasury has pledged to increase funding for existing schemes run by the state British Business Bank.  Set up in 2013, the Bank’s aim was improving the availability of funding for SME’s who are struggling to obtain funding from commercial banks. 

£400m will go towards extending government-backed venture capital funds which invest in SMEs, called Enterprise Capital Funds.  A further £500m of new bank lending will be allocated under the Enterprise Finance Guarantee Scheme.

Under the scheme, the Government guarantees 75% of an SME's bank loan, with the lenders covering the remaining 25%.

The business secretary, Vince Cable who set up the British Business Bank with £1bn of state funds, said the additional £900m of funding was “another big step forward”.

The Chancellor has also announced a 1 year extension of the Funding for Lending (FLS) scheme to January 2016.   The scheme, which was originally launched in August 2012, allows banks to borrow funds from the Bank of England cheaply so that they can then pass this on in the form of cheap loans to businesses.  Banks were initially able to use the FLS to boost mortgage lending, however the Chancellor has said banks must now only use these funds exclusively for lending SME lending.

 

 

Date: 4th December, 2014
Author: Chris Lowry

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