Following on from our recent article on the new Business Bank, this is the third in a series explaining the various government funding schemes available to businesses in the UK.
The National Loan Guarantee Scheme (NLGS)
What is it?
The National Loan Guarantee Scheme (NLGS) was launched on 20 March 2012 and helps businesses access cheaper finance by reducing the cost of bank loans under the scheme by up to 1 percentage point.
Chancellor George Osborne said at the time: “The government promised to help small businesses get access to lower interest rates. Today, we deliver on that promise with a nationwide scheme.
“It’s only because we’ve earned credibility with our deficit reduction plan that we have low interest rates, and it’s only because of this scheme that we can pass the benefits of those low rates onto businesses.”
The NLGS allows banks to borrow cheaply from the financial markets by issuing Government guaranteed unsecured debt. However, changes in market conditions since the introduction of the NLGS mean that it is now less economical for banks to raise unsecured funding. In practice, this means that banks who are currently offering NLGS loans are likely to opt to deliver credit easing to the whole economy through the Funding for Lending Scheme (FLS).
Is the NLGS being stopped?
It is expected that banks currently offering loans through the NLGS will, over time, cease to offer NLGS branded products. However, the NLGS will remain available to banks if they wish to use it in the future or if market conditions change.
Can you still get an NLGS loan?
Participating banks may still be offering NLGS loans. Availability will vary by bank. Banks that issued Government guaranteed debt will continue to offer NLGS products until 100% of the benefit they received from the guarantee has been disbursed to businesses.
Because there are strong incentives built into the Funding for Lending Scheme for banks to increase their lending, it is expected banks will lower interest rates and make loans more easily available. The interest rates and products offered by participating banks will vary.
How does it work?
The NLGS uses government guarantees on unsecured borrowing by banks, enabling them to borrow at a cheaper rate. Participating banks are supposed to pass on the entire benefit that they receive from the guarantees to businesses across the UK through cheaper loans.
Who delivers the scheme?
The banks that signed up to participate in the NLGS are:
- Bank of Scotland
- Barclays
- Lloyds TSB
- Lombard
- Natwest
- RBS
- Santander and
- Ulster Bank
HSBC is not taking part arguing that it is already able to raise funds on the wholesale market at a relatively low cost.
Who is eligible?
A business will be eligible to apply for an NLGS loan if it:
- has an annual turnover of not more than £250 million, as at the date of the business’s last financial accounts or management accounts. The £250 million turnover threshold will include group turnover if applicable;
- is a UK business;
- and is not in financial difficulty.
Which loan products are eligible?
Participating banks are able to offer NLGS discounts on new term loans, hire purchase and leasing arrangements. Refinancing of existing facilities where the term or amount has changed is also permitted. The minimum term for a loan is one year.
Finding alternative funding
If the continuing lack of availability of funding is affecting your business, please contact us. We are specialists in this field and can hopefully point you in the right direction.
As always, if you have any comments or any of your own experience you would like to share on this subject, please contact me at john.thompson@transcapital.co.uk or on 0845 689 8750.
Image by: John Keogh