Photo by Terry Robinson via Wikimedia Commons
Today, the government-owned British Business Bank announced that it is set to provide a maximum £100m in funding for loans to small businesses that are affected by the collapse of Carillion, the construction and outsourcing firm.
The financial aid, which will be delivered through high street banks, aims to enable smaller companies which may have experienced losses from the failure of Carillion to have access cheaper finance.
An enterprise finance guarantee can be applied by contractors to Carillion, through which 40 lenders in the United Kingdom are protected from losses in case of the default of the borrowers. The British Business Bank will cover 75 percent of the losses sustained by the banks, in an attempt to make them more willing to lend.
The collapse of Carillion last month has already resulted in 377 job losses among those who are directly employed by the company. However, some analysts fear the knock-on effects on the many small firms which supplied the former FTSE 250 company.
Meanwhile, in recent days, other businesses in the outsourcing sector, such as Capita, have come under pressure from short sellers.
The £100m worth of funding comes after similar pledges amounting to £225m in total from some of the biggest banks of the United Kingdom, including Lloyds, HSBC, and the Royal Bank of Scotland. It only applies to companies with turnovers that are below £41m.
Greg Clark, the business secretary, stated: “We want to signal very clearly to small and medium-sized businesses who were owed money by Carillion that they will be supported to continue trading.
“The banks have responded to my request by agreeing to support businesses and individuals affected. This further guarantee will help those businesses who may not be able to provide the usual security for a loan.”
Keith Morgan, the chief executive of the British Business Bank, stated: “The enterprise finance guarantee is an important option for smaller businesses who need access to finance, but may not be able to meet a provider’s normal security requirements.
“To help in these exceptional circumstances, we have designed additional flexibility into EFG that could be particularly suitable for firms in the Carillion supply chain. We would encourage lenders to work with their customers to use these new flexibilities to meet their needs.”