Monday, January 12, 2009

SMALL Westcountry businesses could be thrown a lifeline this week if the Government announces details of a £1 billion industry "rescue" fund.

Sources suggest Business Secretary Lord Mandelson is shortly to make clear how struggling firms can borrow between £1,000 and £1 million through the Small Business Finance Scheme, and details of the cash available could be made public this week.

While the fund will be open to businesses across the UK, it seems likely the South West Regional Development Agency (SWRDA) will play a central role in attempting to administer the money to Devon and Cornwall businesses.

The idea of the scheme, announced in November's pre-Budget report, is to offer working capital to solid firms struggling to borrow money in the credit squeeze.

Speculation has mounted in recent weeks as to how the scheme will work and whether £1 billion is enough to unblock the financial system. It seems likely the Government will underwrite the bulk of a loan, perhaps as much as 75 per cent.

This solid backing, in theory, will give banks the confidence to lend to firms, and they will in turn stump-up the remaining cash a business requires.

Banking group Barclays has stated it is working with Government on the plan.

By sharing the risk between banks and the Government of lending to companies in a recession, it is hoped the temporary scheme will foster better relations between the small business community and financiers.

Tim Jones, chairman of the Devon and Cornwall Business Council, said the rationing of finance, or the inability to extend overdraft facilities, was the main reason why small firms in the Westcountry were going to the wall or shedding workers. He said: "Finance is probably the single most important issue for business. Closing the door to finance has been the problem.

"It's crucial we open that door again and it's not going to change without intervention at this level. The one thing that businesses need is finance. For that reason we support this 100 per cent."

When delivering the pre-Budget report in November, Chancellor Alistair Darling said entrepreneurs would be able to borrow "at more flexible terms than before" through the temporary scheme.

While SWRDA looks set to be the middle man between the funding pool and West firms, it is thought the Small Business Finance Scheme is separate from the agency's own rescue package.

In November, SWRDA announced it was working on the Business Loan Fund, a £10 million scheme where firms from Gloucestershire down to Cornwall can access up to £250,000.

The agency has yet to confirm when the scheme will be rolled out, but it is thought to be close to finalising details.

Mr Jones said SWRDA's plan was also "absolutely crucial". A recent survey produced by the Federation of Small Businesses showed almost 40 per cent of 5,000 members canvassed were thinking about closing down.

The Department for Business, Enterprise and Regulatory Reform would neither confirm nor deny speculation on the Small Business Finance Scheme.

Source: thisiswesternmorningnews.co.uk