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.

Risk-averse jerks - the banks

One of the Bank of England's independent policy experts has suggested banks could be "risk-averse jerks"  for holding back on lending to smaller businesses.

And he added that there were even more significant "fundamental" problems in their attitude to lending to businesses with productive ideas.

Adam Posen is a US economist who sits on the Bank's Monetary Policy Committee, which votes every month on whether to change the level of interest rates.

He said on BBC Radio 5Live that UK banks were not doing enough to support the real economy.

"How much of that is because they are reluctant, risk averse jerks and how much because there is something more fundamental at work - I think it's as much fundamental if not more so," he explained.

He said that cutbacks in lending to small, medium and new businesses had been "tremendous".

And Mr Posen commented that banks were "choosing to lend to roll over debts to large borrowers...but they're not issuing new loans to new borrowers."

Small traders try to get out of the red

Britain's 4 million small traders have been paying off debt and overdrafts in a desperate attempt to ride out the economic storm.

As they put a hold on recruitment and spending, they have managed to pay back £889m of the overdrafts since July last year.

The outstanding overdraft total for smaller businesses reported by the British Bankers Association stood at just under £7.6bn at the end of last year, a fall of £1.2bn from the year before.

Meanwhile, traders have been building up their cash reserves, like any household battening down the hatches.

Their cash in current and deposit accounts totalled £59bn, a new record and well above their outstanding lending of £52bn.

Banks are under pressure to provide more funds to small business. They did lend £6.5bn last year, but that was more than offset by repayments and debt write-offs of £9bn.