March 27, 2012 / 3:22 PM / 7 years ago

UK mulls packaging small business loans for sale

LONDON, March 27 (Reuters) - Britain is considering launching a market for small business loans to be bundled together and sold on to investors, and may also extend its credit easing scheme to get cash flowing to companies, finance minister George Osborne said on Tuesday.

The government is hoping that a burst of private sector investment will boost growth and help to fill the gap left by deep public spending cuts, but progress has been hampered by tight lending conditions and firms’ reluctance to take on debt.

Last week it launched a new 20 billion pound scheme to guarantee bank lending to small businesses to lower the cost of borrowing for companies, but business groups have criticised the National Loan Guarantee Scheme (NLGS) for not going far enough.

Some policymakers have floated the idea of creating an agency to package — or securitise — business loans and sell them to investors, and Osborne said the government was looking into that idea.

“Starting to securitise the market for small business lending is something we’re considering,” Osborne said in testimony to parliament’s Treasury Committee

But he cautioned there were major challenges to overcome, such as how to provide transparency about the quality of the loans being bundled.

“Restarting it is not easy and we’re not aware of any country that has successfully done this on a large scale since the crash. It’s a big challenge. We’re actively looking at it,” he said.

Osborne also said the government might expand the loan guarantee scheme beyond 20 billion pounds if demand for loans is strong.

Reporting by Fiona Shaikh. Editing by Jeremy Gaunt.

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