Britain To Offer Credit Lifeline For Business

The new scheme would help businesses to refinance up to 20 billion pounds of existing loans, put in danger by the slide in bank lending.

Britain's business ministry is set on Wednesday to launch new measures to aid small and medium-sized companies as pressure grows on the embattled Labour government to do more to combat a deepening recession.

A source familiar with the talks between the government and industry told Reuters on Tuesday the new scheme would help businesses to refinance up to 20 billion pounds of existing loans, put in danger by the slide in bank lending.

The plan is the latest attempt by Prime Minister Gordon Brown, who is lagging in the polls and must fight an election within 18 months, to kickstart an economy ravaged by a global credit crunch, and follows a job initiative on Monday.

Surveys on Tuesday added to the gloom on the economy, showing retailers suffering the worst December on record, businesses slashing jobs and home sales slumping in one of the world's economies most exposed to a financial sector meltdown.

The new credit proposals would involve an extension of the current loan guarantee and export credit guarantee schemes first announced in November.

The scheme would only cover existing lending rather than fund any expansion. But they would apply to slightly bigger companies, those which employ up to 250 people, and the 250,000 pounds loan limit could rise to a million.

While the source said final details were still being worked out, the government could end up guaranteeing 10 billion pounds of companies' working capital, which could be used to refinance debt worth double that.

Business minister Peter Mandelson is expected to announce the final package on Wednesday morning.

"I am going to deliver real help which targets real need which is going to make a real difference," Mandelson said after a meeting with his cabinet colleagues on Tuesday.

The source said the scheme was designed so that banks would then be freed up from meeting the daily capital requirements of companies and would thus be able to lend to fund expansion and investment.

"These guarantees are not majorly risky," the source said. Companies would pay a fee to the government for underwriting the debt and taxpayers would only be liable if companies default on loans that have been government-backed.

"We want very much to target support on the good companies, on the viable companies, those companies that are in a strong position to repay their loans," prime minister Brown's spokesman told reporters on Tuesday.

After years of uninterrupted growth, the British economy looks certain to have gone into recession at the end of last year for the first time since 1992 and economists predict falling output and hundreds of thousands job being lost in 2009.

The central bank has cut interest rates to a record low of 1.5 percent but banks, many tottering themselves because of risky bets gone bad, are running scared of giving new credit to consumers or companies, squeezing the life out of the economy.

The government injected billion of pounds into banks' failing balance sheets in October but this has failed to spark an increase in lending.