Bank applauds Osborne's move to help SMEs borrow

The Bank of England today welcomed the Chancellor's decision to divert £21 billion of spending from buying up big companies' corporate bonds to more lending for small and medium-sized enterprises.

Governor Sir Mervyn King said: "SMEs, unlike larger firms are constrained to borrow through the banking system which is under considerable pressure. So I am very supportive of government efforts to ease the flow of finance to SMEs."

Up to £20 billion of money will be available to small companies under the new National Loan Guarantee Scheme and another £1billion for medium-sized ones under the Business Finance Partnership.

George Osborne said that an immediate £20 billion of funds previously used in the Bank of England's asset purchase scheme would be diverted to banks over the next two years to lend to small business with revenues below £50million. That should cut the rate of interest they are charged by 1%.

"We will allocate these funds to banks according to how they increase or decrease their net lending to smaller companies," Osborne said. "It should be up and running in the next few months."

The move was praised by Owen Woodley, chief executive of Shawbrook - a small bank.

He said: "There is still a huge demand for loans from small businesses which cannot get money from the big banks."