The Treasury has launched its National Loan Guarantee Scheme (NLGS) for small business today (20 March).

The scheme will work by offering small and medium sized businesses access to cheaper finance by reducing the cost of bank loans by one percentage point.

NLGS will provide banks with £20bn to guarantee unsecured debt which will enable banks to borrow at a cheaper rate.

Banks will then pass the benefit of these guarantees onto smaller businesses via cheaper loans.

The Treasury says it is introducing the scheme as smaller businesses are more vulnerable during economic difficulties and less able to access alternative sources of funding meaning they are more reliant on bank lending.

Companies with less than £50m in turnover should apply for loans at a participating bank.

Currently Barclays, Bank of Scotland, Lloyds TSB, Natwest, RBS and Santander have all agreed to take part in the scheme.

Steve Cooper, managing director at Barclays, said: “SMEs are the lifeblood of our economy and we’re delighted to be part of a scheme that means we can offer this new initiative to our customers.”

Barclays is offering borrowers in the scheme an upfront cashback of the interest saved.

Mr Cooper said: “By giving our customers the full benefit of NLGS on day one, they receive a lump sum of cash which they can put to use immediately to grow their business. We think this is more useful than drip feeding the value over the lifetime of a loan.”

More details are expected to be given by Chancellor George Osborne in the Budget on 21 March.

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