ACCA - The global body for professional accountants
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.'

-Ends- 

For further information: 

Helen Thompson, ACCA Newsroom
+44 (0)20 7059 5759
+44 (0)7725 498654
helen.thompson@accaglobal.com

Notes to Editors

  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.
  3. ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.
  4. We support our 147,000 members and 424,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,500 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence.
  5. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.