Government to launch help for small firms

By Matt Falloon and Sumeet Desai

LONDON (Reuters) - The government will Wednesday launch measures to help small and medium-sized businesses refinance up to 20 billion pounds of existing loans to prevent credit-starved companies from going bust.

A source familiar with the talks between the government and industry told Reuters that the plans would involve an extension of the current loan guarantee and export credit guarantee schemes first announced in November.

The new scheme, however, would only cover existing lending rather than fund any expansion. But it would apply to slightly bigger companies, those which employ up to 250 people, and the 250,000 pounds limit could rise to a million.

While the source said final details were still being worked out, the government could end up guaranteeing 10 billion pounds of working capital, which could be used to refinance debt worth double that.

"We are examining specific remedies, not just a blanket subsidy," a spokesman for Prime Minister Gordon Brown told reporters.

The source said the scheme was designed so that banks would then be freed up from meeting the daily capital requirements of companies and would thus be able to lend to fund expansion and investment.

"These guarantees are not majorly risky," the source said.

DISMAL OUTLOOK