Small business loan plan announced

The Government announced plans to help small- and medium-sized businesses through the credit crunch by offering guarantees on £20 billion in bank loans.

The guarantees will be for businesses deemed creditworthy and which have trouble accessing capital because of the global credit crunch, Business Secretary Peter Mandelson said.

"Their business models are not flawed, but the credit crunch has drastically reduced the amount of capital available, and banks have tightened their lending criteria," Mandelson said.

Under the plan, the government is assuming the risk for half of the total 20 billion pounds, with banks taking on the risk for the other half.

Mr Mandelson said the plan would address businesses' needs for cash flow, credit and capital.

The government guarantee will apply to loans, but can also be used by companies to convert existing overdrafts into loans.

"We are offering specific solutions, not a blanket subsidy," he said.

The plan is the latest attempt by Prime Minister Gordon Brown's government to inject life into an economy hard-hit by the global credit crunch. On Monday the government said it was creating a new jobs program which will offer incentives, including money, to get companies to hire people out of work.

Brown's government also has pumped billions of pounds into the country's struggling banks, and the Bank of England has slashed interest rates to a record low of 1.5 percent to ward off a deep recession.

Still, banks have been reluctant to give new credit to consumers or companies because they are afraid of defaults amid the global economic downturn.

In addition to the 20 billion pound guarantee program, the government also said Wednesday it would secure about 1 billion pounds in loans for smaller companies hit by the downturn. In that case, the government will assume the risk for 75 percent of the loan, while the banks will back the remaining 25 percent.