Cheap loans for small businesses

What difference will the government's new National Loan Guarantee Scheme make to a small business?

Quick recap: Mr Osborne guarantees £20bn of fundraising for banks over 2 years, so they can raise money at a cheaper interest rate than normal to lend on to small businesses.

The technical name for the policy is "credit easing".

Full details tomorrow, but the burning questions for the firms and traders concerned will be what's it worth, can they get it and how much is available?

1. What's it worth?
Up to 1% off the interest rate you would have been charged outside the scheme.
One big bank offers an average interest rate to small business of just under 3%, with the vast majority of loans under 6% -- so 1% off that is a decent amount.

2. Can I get it?
You have to  pass the same credit checks as normal. There's no special leniency.
New and existing borrowers will qualify.
The lending is expected to be fixed rate and you're likely to have to provide security, either business property or your own home.

3. How much can I borrow?
There's no upper limit and loans will go right down to £1,000, though not all banks will go down that far.
Terms are likely to be 3 or 5 years.

4. How many loans will be available?
The scheme will only cover a minority of small business lending during the 2 year period.
So if it proves popular, it'll be...buy now while stocks last.

We know already that RBS/NatWest, Barclays, Lloyds, Santander and Aldermore will be offering the discounted loans, not HSBC.

Will it work? It seems likely that a lot of firms will be able to take advantage of the scheme, even though they would have borrowed the money anyway.

But the cut-price loans and the publicity could tempt some new borrowers who are ready to expand.

Credit easing...what?

The Chancellor has announced something called "credit easing". Er, what?

No, it's not quantitative easing, something the Bank of England does off its own bat (which is a bit like printing extra money).

Credit easing is a way of making it easier for businesses to borrow money if lending gets very difficult again, as a result of the Eurozone debt crisis.

In other words, if there's another credit crunch.

Companies raise billions of pounds by selling bonds or IOUs to investors and City firms. Bonds provide a method of borrowing money without taking out a bank loan.

But in a credit crunch few people want to lend so it's hard to raise the cash needed to keep going or expand.

That's where credit easing would come in.

The Treasury could direct the bank of England to buy company bonds, if the Eurozone crisis prompted banks over here to draw in their horns even further.

The strategy would make it easier for businesses to get credit. And there would be a small risk that the Treasury could lose money.

What about small businesses?

The suggestion is that banks would be encouraged to parcel up their small business loans into bonds, which the Bank would start buying as well.

More details likely in November.