State to aid small firms

By Matt Falloon

LONDON (Reuters) - Britain on Wednesday will launch measures to ease the flow of credit to small and medium-sized businesses in the economic downturn, the business ministry said on Tuesday.

The package could guarantee loans worth of up to 20 billion pounds, an industry source said. It is expected to be targeted at companies with up to 250 staff and the government would guarantee 75 percent of the loan, with the banks backing the remainder, the source added.

The credit crunch has cut finance to many small businesses as banks shy away from any risky lending, raising pressure on the government to step in to support industry.

An expansion of a loan guarantee scheme or export credits guarantee first proposed in November could be on the cards given an increasingly bleak outlook for British businesses as the economy slides into its first recession since the early 1990s.

The government said measures were still being finalised.

"We are working hard to launch the help first discussed in the pre-budget report," a spokesman for the Department for Business, Enterprise and Regulatory Reform said.

In November, the Treasury outlined plans for a temporary guarantee -- to be launched in early 2009 -- to permit up to 1 billion pounds of government-backed lending from banks to small businesses.

"We are examining specific remedies, not just a blanket subsidy. We do want to build on the PBR package and this is where we do hope to be able to say more," a spokesman for Prime Minister Gordon Brown told reporters.