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Britain set to aid smaller firms

THE British government announced yesterday a plan to help small and medium-sized businesses through the credit crunch by offering guarantees on 20 billion pounds (US$29 billion) in bank loans.

The guarantees will be for businesses deemed creditworthy and which have trouble accessing capital because of the global credit crunch, Business Secretary Peter Mandelson said.

The plan is the latest attempt by Prime Minister Gordon Brown, who is lagging in the polls and must fight an election within 18 months, to revive an economy ravaged by a global credit crunch, and follows a job initiative on Monday.

Surveys on Tuesday added to the gloom over the economy, showing retailers suffering the worst December on record, businesses slashing jobs and home sales slumping in one of the world's economies most exposed to a financial sector meltdown.

The new credit guarantees would involve an extension of the current loan guarantee and export credit guarantee schemes first unveiled in November.

The scheme would only cover existing lending rather than fund any expansion. But they would apply to slightly bigger companies, those which employ up to 250 people, and the 250,000-pound loan limit could rise to a million.

Not major risks

While the source said final details were still being worked out, the government could end up guaranteeing 10 billion pounds of companies' working capital. The guarantees could also be used to refinance debt worth double that.

"I am going to deliver real help which targets real need which is going to make a real difference," Business Minister Peter Mandelson said after a meeting with his cabinet colleagues on Tuesday.

The source said the scheme was designed so that banks would then be freed up from meeting the daily capital requirements of companies and would thus be able to lend to fund expansion and investment.

"These guarantees are not major risks," the source said.

Companies would pay a fee to the government for underwriting the debt and taxpayers would only be liable if firms default on loans that have been government-backed.


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