In an attempt to keep the banks supplying credit to small businesses through the economic downturn, the business secretary, Lord Mandelson has announced that he will be guaranteeing up to £20 billion of small business loans.  Businesses that record sales of up to £500 million will qualify for the newly guaranteed loans.

However, many are criticising the plan as there is concern that £20 billion will not be enough to guarantee lending from the banks and in turn aid the small businesses that need it so desperately.

Lord Mandelson said, “The £10bn injection to banks represents a guarantee to enable them to free up working capital to sustain existing loans and create new ones.  A condition of [banks] getting the money will be that they negotiate with the government on what capital will be freed up.”

”UK companies are the lifeblood of the economy and it is crucial that government acts now to provide real help to support them through the downturn and see them emerge stronger on the other side,” continued Mandelson.

However, the shadow small business minister, Mark Prisk, didn’t sound too optimistic about the plan, announcing his worry about the necessary money reaching those who need it.  “Small businesses have waited a long time to hear the details. Whilst welcoming any proposals, the question is: ‘When will the money reach companies?”

George Osborne, the shadow chancellor, has spoken out about how the news comes after a similar proposal was made weeks ago by the Conservative party and has announced that he hopes this move made by the Government will aid the businesses.

“Let us hope that they will properly implement this Conservative policy rather than a pale imitation, or else they run the risk of repeating the mistakes of their expensive temporary VAT cut and achieving nothing,” said Osborne.

Meanwhile, the move has also received praise, as David Frost, the British Chamber of Commerce’s director-general, announced that, “Businesses are critically in need of cash-flow. Any move to get banks lending again will be seen as good news at this bleak time.  A government promise to guarantee individual loans to businesses is not only sensible, it’s crucial.”

This is not the first attempt the Government has made to keep the flow of lending alive.  Recently the Government announced a half a billion pound bail-out scheme, which did not do much to aid the money woes of the small businesses in the country.

However, this new scheme by the Government provides banks the ability to provide loans to small and medium sized businesses that would usually not qualify under the current economic crisis.

The British Bankers Association has recently released figures that showed that lending to small firms had hit £45 billion in November, slowing slightly, yet still the figures show that the lending levels are still above the lending levels of 2007. It will be a case of necessity for many small businesses around the country that this new plan outlined by the Government is successful.

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