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Loan Guarantee Scheme

Volume 12: debated on Monday 9 November 1981

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4.

asked the Secretary of State for Industry how many applications under the loan guarantee scheme have been received; and how many have been approved to date, giving the amount advanced.

I am pleased to announce that in the first five months of the scheme, to the end of October, 1,172 guarantees had been issued for loans totalling £41·1 million and a further 34 applications remained to be processed. In addition, a small number of applications have been withdrawn for various reasons and a very few have been rejected on technical grounds.

I thank my hon. Friend for that reply. Obviously, the size of the take-up shows the value of and the need for this loan guarantee scheme. Although my hon. Friend announced an increase recently, the speed of take-up is such that within four or five months he will have to come back to the House for a further increase if it is to be maintained.

Has my hon. Friend any idea of the split in loans between manufacturing and servicing industries? Obviously we want to encourage manufacturing.

Are any checks being made on the guarantee premium percentage being charged to see that it is correct? Or, it is too high—

I agree with my hon. Friend that the response so far has been extremely encouraging. I have said that I shall review the scheme constantly. It was as a result of the first review that the increase in the ceiling in this financial year from £50 million to £100 million was announced. I hope that that will be sufficient.

As for the distinction between manufacturing and servicing, I am glad to tell my hon. Friend that just over half of all loans at present have been to manufacturing industry, which again is very encouraging.

My hon. Friend asked, finally, about the premium. The premium has been set at 3 per cent. to cover bad debts. At this stage we do not know what the bad debt ratios are likely to be. I shall review this matter from time to time. However, it is too early at this stage to do it.

Can the hon. Gentleman explain why we have a much higher premium than any other country operating a similar scheme? Three per cent. is much too high. Will the Minister assure the House that he will exert pressure to get the premium reduced?

It is important to make it clear that the cost to the borrower is 2·4 per cent. It is 3 per cent. of 80 per cent. That makes a difference.

The experience to date and the high demand show that the premium is not an obstacle to people taking up the scheme. In October the demand for loans was higher than in any previous month—and at a time of comparatively high interest rates. That is an indication that the level of the premium is not a deterrent.

We intend the scheme to be self-financing. We need a little more experience of the scheme before we can look at the level of the premium.

Does my hon. Friend accept that the success of the scheme reflects great credit on the Government for introducing it and for recognising the importance of the smaller firms sector? Does it not also reflect great credit on organisations, such as the small business bureau, which have worked quite hard for it during the past few years?

Will my hon. Friend look at the possibility of increasing the maximum amount for any one loan from £75,000 to £250,000? Does he agree that if that were done it would help many medium-size firms which have a good potential for offering new jobs?

I am grateful to my hon. Friend for his kind remarks. I, too, wish to pay tribute to the small business bureau and to people, such as my hon. Friend, for their work in helping us to get the scheme off the ground.

My hon. Friend asks about the £75,000 ceiling. Again, the fact that the demand is so high has to be taken into account. My hon. Friend's point will in due course be part of a wider review which I shall undertake. However, companies and individuals can get up to £75,000 in a loan as part of a wider financial package. We are not talking simply about financial deals with a limit of £75,000.

Will the Minister consider linking the loan guarantee scheme with the facilities available for cheap money through the European Coal and Steel Community? Would not that ensure that money could be made available on a non-secured basis at as little as perhaps 13½ per cent.?

The two schemes are very different. As the hon. Gentleman will know, the ECSC cheaper interest schemes go only to specific parts of the country. There is an obvious difficulty there. However, I should make it clear that under the loan guarantee scheme personal security is not only not required, but is never asked for. That largely deals with part of the hon. Gentleman's question.

Although I warmly welcome the scheme and support my hon. Friend, who wishes to see it extended, is he aware that when many business people approach their banks about the scheme, the banks know nothing whatever about it? That is extraordinary. Will my hon. Friend ensure that the banking system—which has got money coming out of its gunwales—is made fully aware of the scheme so that small businesses, which can take advantage of the scheme and provide employment, can go to the banks in the knowledge that they will be able to help?

I regularly raise this issue with the banks. They have made strenuous efforts to get all the details of the scheme through to all their 14,000 branch managers. As I go round the country I find, by and large, that people are aware of it. If my hon. Friend has any examples where that is not happening, I shall happily take them up.