The Midlands automotive industry was thrown a lifeline today as the government announced a multi-billion package of measures aimed at unblocking lending to small firms - there was nothing in the package for major manufacturers such as Jaguar Land Rover.
The measures, announced by Business Secretary Lord Mandelson, include a £10 billion working capital scheme, securing up to £20 billion of short-term bank lending to companies with a turnover of up to £500 million.
The enterprise fund will be worth £75 million, made up of £50 million from the Government and the rest from banks and will be available for small firms which urgently needed equity.
The government also announced an enterprise finance guarantee scheme, securing up to £1.3 billion of additional bank loans to small firms with a turnover of up to £25 million.
Dudley MP and Business Minister Ian Pearson told the Birmingham Post after the announcement that by making the scheme available to firms with a turnover up to £500 million, the government had included many of Britian’s largest businesses.
He said: “Jaguar Land Rover is important to the UK economy and of strategic importance to the West Midlands.”
He said “discussions rather than negotiations” were still taking place.
“In the first instance, the company is looking at how it undertakes financial restrucuring of its business.”
The measures announced by Lord Mandelson would help employers acros the region, he said.
“This is eactly the sort of package that companies in my Black Country constituency and the West Midlands have been telling me they need. They have been talling me that there is a real problem with cashflow and credit. What we are doing is helping not just small and medium sized enterprises in the West Midlands, but larger companies as well.”
The Federation of Small Businesses welcomed the announcements, but warned it was a “last throw of the dice” to unblock lending from banks to small and medium-sized enterprises.
Business support programme for the automotive industry Accelerate - which is managed by Advantage West Midlands - welcomed the Government’s £20bn loan package for small businesses.
Rachel Eade, Programme Manager, said: “When we hosted our supplier forum in December, one of the biggest problems facing our businesses was banks reducing overdraft facilities and firms being able to secure capital to see them through the downturn.
“This move by the Government should open these channels up to a certain extent and could prove the difference between a number of auto companies surviving and not.
“It will allow suppliers to retain their staff and continue to invest in new products, all in preparation for when the car makers kick-start production again.
“This is not about giving failing companies another chance. Firms in the automotive supply chain are well run, efficient and producing world class components. This package is about making sure they have the opportunity to compete on a level playing field.
“The financial injection should stimulate the high street banks into more positive action and we need to ensure that manufacturing takes its share of the support.”
Lord Mandelson said: “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.
“We know that some companies are struggling to secure the finance they need, not because of any failure in their business but due to the tougher credit conditions.
“That is why we have designed a package of measures addressing different forms of credit and providing real help for businesses.”
Lord Mandelson also confirmed that the government was discussing with trade credit insurance providers a government scheme to help companies affected by reductions in their credit insurance. He said the working capital scheme was a direct response to the constraint on bank credit available for lending to ordinary-risk businesses with a turnover of up to £500 million a year.
The Government will provide banks with guarantees covering 50 per cent of the risk on existing and new working capital portfolios worth up to £20 billion.
The guarantee will secure up to £20 billion of working capital credit lines for companies, ensuring they were safe from reduction or withdrawal, said the Government.
In addition, the guarantee will free up capital which the banks must use for new lending as a condition of this scheme. This is lending that would otherwise not have been provided.
The minister said the enterprise finance guarantee aimed to help smaller, credit-worthy companies which might otherwise fail to access the finance they needed for working capital or investment finance due to the current tight lending conditions.
The Government will provide £1 billion of guarantees to support £1.3 billion of bank lending to smaller firms with an annual turnover of up to £25 million, which are looking for loans of up to £1 million for a period of up to 10 years.
The guarantee, available through high street banks, will apply to loans and can also be used to convert existing overdrafts into loans to enable businesses to free up their current overdraft facilities to meet working capital demands.
The Government also offered to invest in viable companies which had high levels of existing debt through a new £75 million capital for enterprise fund, which banks are contributing to.
The fund, to be managed externally, will provide long-term capital to businesses which have exhausted traditional forms of finance. Companies can then use this capital to invest in and grow their business.