The Government’s Business Secretary Lord Mandelson has released details of his plan to help small to medium sized businesses with a new loan guarantee scheme of up to £20 billion.

If your business has a turnover of less than £500 million and in return for a fee the tax-payer will provide banks with a guarantee against companies defaulting on loans. This measure is hoped to help small to medium sized business survive the present down-turn and designed to encourage banks to lend. The Government will guarantee 50% of these loans and the loans must be new advances to businesses.

My main concern is that £20 billion does not sound a lot of money when you consider the number of small businesses in the UK. I think the Government will need to re-visit this figure in at some point in 2009!

The price of crude oil has continued its downward spiral and has now hit a low that was last seen in early 2005.

It will be interesting to see where the bottom is on the oil price and I will admit that I thought this had been reached at the $50-55 price. However, Merrill Lynch has reported that the price could fall as low as $25 per barrel if the global recession extends to China. Demand for oil has fallen dramatically with most of the major economies falling into recession including the US, the UK, Japan and the Eurozone.

The leaders of all major world economies are trying to stimulate growth and are trying to put confidence back into the system and in particular the banking system. With the UK’s Bank of England drop in interest rates to 2% on Thursday of this week and the US Treasury dropping their bank rate to 1% and the Eurozone to 2.5%.

Again, I call for small businesses to report how they are doing and what trades are being most affected by this down-turn. We see the headlines in the news about household named businesses such as Woolworths and MFI both going into receivership, but it is the small businesses that make up the majority of the world economies and it would be good to get feedback on where things stand.

Small businesses should be allowed to defer paying VAT for up to six months, say the Conservatives.

Shadow Chancellor George Osborne said many small businesses were struggling after having had overdrafts withdrawn or interest rates put up.

A VAT delay could prevent some companies from “going to the wall”.

Business Secretary Lord Mandelson told the BBC he was concerned about banks changing loan arrangements to small businesses, then charging them for it.

He said he would concentrate on firms who had good long-term prospects but were facing short-term cash flow problems.

‘Responsible government’

The Conservatives have already pledged to cut corporation tax if they were in power.

The party says allowing small and medium-sized businesses to defer VAT payments for six months – they would still have to pay interest on the deferred tax of 7.5% – would ease cash flow problems.

“We’ve got to repair our economy by getting the public finances back in order” David Cameron

Ministers plan repossession help
‘It’s not as bad as the 1970s’
UK economy ‘already in recession’

Mr Osborne said HM Revenue and Customs had an “increasingly aggressive reputation for driving small businesses over the edge with tax demands”.

He said allowing businesses to defer VAT payments for six months was “the kind of thing a responsible government should do”.

“Along with our plans for a freeze on council tax and a cut in small business tax, this is a measure that could be implemented to help cash flow and in some cases prevent companies from going to the wall,” he said.

“It was right to rescue the banks, because everyone depends on them, but now we need to rescue the real economy and stop jobs being lost and families suffering unnecessarily.”

‘Contraction’

On Friday, Conservative leader David Cameron ended his truce with Gordon Brown over the economy, accusing the prime minister of “irresponsible” economic policies which had created an unsustainable boom.

It came as opinion polls suggested Mr Brown had closed the gap on the Conservatives in the opinion polls since since the global financial system went into meltdown.

Lord Mandelson urges banks to do more to help small businesses

In an article in the Observer on Sunday, Mr Cameron said that further plans to help families, homeowners and entrepreneurs would be laid out “in the coming months”.

“In the short term, we’ve got to help families up and down the country with proposals to get them through the downturn,” he said.

“In the long term, we’ve got to repair our economy by getting the public finances back in order.”

Later Lord Mandelson told BBC One’s Andrew Marr Show the government would look at the banks’ attitude to giving loans to small and medium sized businesses “during this contraction”.

“One of the things that concerned me, I must say, is that banks are not only suddenly and unilaterally changing the loan arrangements and conditions on which they are making finance available, but they are also charging the firms higher administrative costs for making those changes in their loan conditions. That is not good enough.”

He said those banks in which government was taking a stake had a commitment to “broadly maintain the availability of finance” for the housing market and small and medium firms that was available in 2007.

“We have made clear what we expect and what the condition is for our investment in those banks.”

With other banks, he said he and the chancellor would talk to chief executives about taking a more flexible approach about maintaining credit lines.

News reported by The BBC