The ratings agency Fitch has said that a small and medium-sized enterprise guarantee scheme would mean that the UK would come into line with other European countries. It would also mean, according to the ratings agency, that there would be increased collateralised loan obligation insurance, or ‘CLO’.
George Osborne, in a recent speech to the Conservative party, has as requested that the Treasury start looking at ways for more money to be bought into the small business sector, for example through credit easing measures.
The ratings agency believes that a guarantee scheme for small businesses would mean that banks would issue more CLO’s to small businesses. They have also questioned whether it is the lack of lending to small businesses that is actually preventing them from growing.
There is a current scheme in place for small businesses, this guarantees around 75% of a loan made to them, this is only available to some, eligible, small and medium-sized enterprises. This scheme is relatively small when compared with others in Europe.
For example, in Spain, the transactions that these businesses conduct are guaranteed by the government. The system works by the senior trench being guaranteed, and the bank who offers the loans has the first loss exposure to the portfolio of the small enterprise.
KfW is the scheme that runs in Germany and it is an intermediary for the synthetic transfer of risk to the loans offered to SMEs. This means, that banks can securitise lines in a standardised way and since its introduction in 2000 investors have become more familiar with this type of asset class. Having a KfW means that transactions are included in the public sector Pfandbrief.