Cameron calls for loans boost to help small firms

DAVID Cameron today called for a major expansion of the scheme to get banks lending to small businesses again.

He called for a National Loan Guarantee Scheme to provide "billions of new loans" underwritten by the taxpayer in case of default. The idea mirrors a smaller scale proposal in the Chancellor's pre-Budget report but Mr Cameron said ministers were not going far enough.

Outlining his plans in a London speech, he said: "It is like the secured guarantees for a fee that the Bank of England has already put in place for inter-bank lending, which we supported. And most important of all, by guaranteeing credit to our businesses, it gets to the heart of the credit crunch and goes a long way to solving Britain's credit problems." Under the scheme, banks would be liable for a share of the money lost if a firm went bust and could not repay the loan. "It's important that banks take a share of the risk to prevent reckless lending," he said. "And it will be the banks not Government making the decisions about who to lend to."

But a big share of the loss would be picked up by the Government, in return for the banks paying a commercial insurance fee on each loan to help protect the taxpayer. The Federation of Small Businesses welcomed the proposal.