European Commission approves UK scheme to support lending to businesses
On 24 March 2009 the European Commission approved a UK scheme to encourage banks to provide new lending to businesses in the UK (Working Capital Guarantee Scheme). The Working Capital Guarantee Scheme supports the provision of working capital loans to small and medium sized businesses operating in the UK market.
Under the scheme, the UK will offer banks up to £10 billion of Government guarantees in respect of portfolios of working capital loans to sound, credit-worthy companies. The purpose of the facility is to release capital which banks can redeploy in order to increase all types of lending above their current plans to businesses with a turnover of less than £500m. Further, the banks are not getting a free ride. The guarantee will be priced at a level designed to make the scheme self-financing.
As with other recent State Aid measures in the financial sector, the Commission has approved the measure as compatible aid within the meaning of Article 87(3)(b) EC Treaty, Aid to remedy a serious disturbance in a Member State’s economy.
In approving the Working Capital Guarantee Scheme the Commission found that it was:
- non-discriminatory ( the scheme is open to all major UK banks with substantial exposure to the business sector in the UK and applies in respect of businesses operating in the UK market, including subsidiaries of foreign firms);
- limited in time (two years); and
- requires a risk-based remuneration.
For the Commission press release, please click here.
