HC Deb 22 March 1996 vol 274 cc371-2W
Dr. Twinn

To ask the President of the Board of Trade if he will make a statement about the outcome of the recent review of the small firms loan guarantee scheme and proposed changes to the rules. [22984]

Mr. Page

Following the announcement of a review of the scheme made by the Chancellor of the Exchequer in his November 1994 Budget Statement a consultation document was issued in March 1995. A wide range of organisations was consulted, including scheme lenders, small firms organisations and other Government Departments. After considering all the representations made about the scheme I am today announcing a number of changes aimed at simplifying the rules.

These changes follow a very significant increase in use of the scheme over recent years. Following changes made to the scheme in 1993 the Government are now guaranteeing over three times the number of loans, at around five times the value, compared to the period immediately before those changes. The changes that I am announcing today will help to ensure that this increased support remains focused on those areas where it can be of maximum benefit.

Firstly, I am reducing from six to two the number of size definitions used to determine eligibility for the scheme. Manufacturers will retain their current limit of £3 million a year turnover whilst all other eligible sectors will have a new limit of £1.5 million. As well as simplifying the present system this will give a considerable boost to the service sector which is currently restricted to a turnover level of £0.5 million a year.

In order to allow more businesses which have the involvement of an outside equity investor—particularly "business angels"—to benefit from the scheme, I am doubling the shareholding of such investors which can be disregarded for eligibility purposes from the current "under 10 per cent." to "under 20 per cent".

In order to help the smallest businesses, I am introducing the possibility of capital repayment holidays for loans up to £30,000 guaranteed under the streamlined arrangements available for loans of this size.

Some small businesses, particularly those in high technology areas, often face additional problems in obtaining finance. To help address this issue I will be seeking to add a limited number of specialist lenders to the current list of 20 and will be particularly looking for lenders with expertise in lending to high technology small businesses.

Since the increase in the maximum loan to £250,000 in 1993 the present maximum term of seven years is no longer always the most appropriate. Therefore, I will be raising the maximum term of scheme loans to 10 years.

A number of further changes will be made to focus more closely the available support. These are:

  1. (i) following the changes made in 1993, a further range of businesses where support is often at the expense of displacement of business from other firms in the locality will be excluded from the scheme. The sectors affected are catering (except businesses offering accommodation), business to business retailing, and car valeting and associated activities.
  2. (ii) the discontinuation of the present enhanced terms for businesses in city challenge and inner city task force areas;
  3. (iii) adjustments and additional exclusions to take account of revised European state aid rules. The sectors affected are agriculture and fisheries, coal, shipbuilding, steel and transport;
  4. (iv) a reduction from two years to six months, after the granting of a guarantee, in the limit for drawing down the loan or the initial stage of a loan if it is to be released in stages.

Except for exclusions due to state aid rules which will be put into effect forthwith, the changes will be implemented on 1 September 1996, following negotiation with the lenders of the necessary legal and administrative changes.