Business Loans

In a move to make business loans more readily available to small busineses the Chancellor George Osborne has today launched the National Loan Guarantee Scheme saying it is good for the economy. Four of the UK's biggest banks have signed up to a scheme to encourage them to offer business loans more cheaply

Under the Scheme loans from Barclays, Royal Bank of Scotland, Lloyds and Santander, and banking minnow Aldermore, will be guaranteed by the Government.The theory is that they then pass on this cheaper funding in the form of lower interest rates on business loans. Skeptics wait to see if this will lead to them relaxing their loan criteria.

The launch of the scheme comes at a time when alternative forms of borrowing are generating more and more interest. In particular there is growing acceptance of peer-to-peer lending, and in the UK this is led by Zopa for private borrowers and Funding Circle for the provision of business loans

Whilst these companies are not FSA regulated they use exactly the same credit rating resources as the banks, and many commentators predict long term growth for these companies, perhaps at the expense on traditional banks whose reputations have justifiably suffered since the start of the credit crunch

What’s important for peer-to-peer lenders to recognise is that Zopa and Funding Circle are acting as brokers and it is they the lenders who take the risk in the case of any defaults. 

What’s important for companies seeking loans to understand is that lenders, whether banks or peers, or indeed equity investors, will judge them on their creditworthiness and on the justification for borrowing. In other words the strength of their business plan.