National Loan Guarantee Scheme – ACCA welcomes the way ahead | ACCA Global
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Our analysis suggests that a significant number of businesses – up to 40,000 – could potentially be encouraged to apply for loans who otherwise would have not; some more, maybe 5,000 at most, that would previously have been offered a very high interest rate and rejected the loan altogether might now be offered a more reasonable rate.
—Andrew Leck, head of ACCA UK, ACCA

UK businesses with turnover of no more than £50m could benefit by accessing cheaper loans - is this the magic that Merlin’s missing? asks leading accountancy body

The government’s announcement today (20 March) of the National Loan Guarantee Scheme (NLGS) is welcomed by ACCA (the Association of Chartered Certified Accountants) as it could provide an attractive option for Small and Medium Sized Enterprises (SMEs) looking to access finance for their business needs. 

The new scheme applies to loans, hire purchase and leasing, and will reduce the interest rates of bank loans under the scheme up to a full percentage point. ACCA believes that this 1% cut could have a significant impact on the money a small business has to repay during the lifetime of a loan, but warns SMEs that rates on NLGS loans may vary between banks as they operate their own lending models.

The aim with this scheme is to encourage businesses to invest, and the scheme also applies to refinancing so it is not limited to new loans. However, the scheme does not apply to overdrafts, which are often used by SMEs for managing their finances. 

Andrew Leck, head of ACCA UK, says: 'The simple fact is that SMEs are still unable to invest the amounts needed for a sustainable recovery and growth is by no means assured in 2012. ACCA is well aware of the commercial barriers SMEs face and that a number of linked initiatives are required to improve investment for them.'

Figures from the SME Finance Monitor, the definitive record of UK SMEs’ access to finance, show that 22% of those that would have liked to apply for loans but did not have been put off by, among other things, the price of credit.

Andrew Leck adds: 'Our analysis suggests that a significant number of businesses – up to 40,000 – could potentially be encouraged to apply for loans who otherwise would have not; some more, maybe 5,000 at most, that would previously have been offered a very high interest rate and rejected the loan altogether might now be offered a more reasonable rate.' 

Analysing the government announcement in more detail, ACCA believes that the 1% reduction in loan rates could make a significant difference. According to the SME Finance Monitor, the typical loan taken out in the past year had an interest rate of 5.3% for fixed rate loans and 3% over the base rate for variable rate loans. 

Andrew Leck concludes: 'Of course, interest is only part of the cost involved in taking out loans. Two-thirds of all SMEs that took out or renewed a loan in the past year paid some kind of fee and more SMEs objected to the fees they were offered by their banks than the actual interest rates. We would urge SMEs to familiarise themselves with the NLGS; their accountant should be able to explain whether they are eligible and what they will have to do to benefit from this opportunity.'

  1. The Small Business Finance Monitor can be found in the 'Related Links' section to the left of this article.
  2. Details of the Scheme can be found on the Treasury website via the 'Related Links' section to the left of this article.