Britain launched a credit guarantee program on Wednesday aimed at helping small and medium enterprises refinance up to £20 billion ($29.2 billion) in debt, thereby preventing their collapse.
This is the latest in a series of efforts by Prime Minister Gordon Brown to restore the flow of credit to the crisis-hit British economy. Under the announced program, the government will guarantee loans worth £10 billion, which could secure the restructuring of double the value of loans for companies with revenues up to £500 million, said British Secretary of State for Business, Enterprise and Regulatory Reform Peter Mandelson. As part of this program, companies will pay the government a fee for the guarantee against default, meaning that the government will mobilize only when companies are unable to repay their debts. Officials claim this will minimize risks for taxpayers.
Mandelson also launched the Enterprise Finance Guarantee Scheme, which would guarantee up to £1.3 billion in additional bank loans for companies with revenues up to £25 million. The government also promised assistance to companies in raising new long-term capital by investing in sustainable companies with significant existing debts through a new £75 million enterprise fund, which banks can also participate in. After several years of continuous growth, it is almost certain that the British economy stepped into recession at the end of last year for the first time since 1992, and economists predict further weakening and the loss of hundreds of thousands of jobs in 2009. The central bank has cut interest rates to a record low of 1.5 percent, but banks, many brought to the brink of collapse by poor risky investments, are reluctant to extend new loans to consumers or companies, which is putting significant pressure on the economy. (H)
