A scheme to help small businesses cope with credit risk will reportedly be announced by the government in next week's Budget.
Companies have been hit by a reduction in the availability of credit insurance, which protects them against the risk they will not get paid. Small firms have been lobbying the government to provide assistance to protect against credit risk.
The Financial Times reported that ‘medium risk’ businesses that have found credit insurance hard to get will be offered guarantees, citing government insiders.
The scheme reportedly responds to concerns that supply chains are threatened by the recession-fuelled reduction in credit insurance.
The paper said that the exact scale of the scheme still has to be finalised, although it may fall short of the £5bn cap the insurance industry is hoping for.
Thousands of businesses have been affected as credit insurers, who have watching bank support closely when covering company risk, have withdrawn from high-risk areas and the cost of insurance for most sectors has increased.
Many suppliers are demanding cash on delivery, which can have a disastrous affect on struggling companies’ cashflow.
The FT said the scheme would mark the culmination of months of negotiations with insurers led by Lord Mandelson, the business secretary and will form the centrepiece of a Budget aimed at easing the recessionary concerns of small and medium-sized businesses.
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