Businesses face collapse as banks fail to lend despite £1bn government loan finance guarantee

Small firms are on the brink of collapse because they are being denied money pledged by ministers to save them.

A £1bn loan guarantee scheme was set up by the government in January to encourage banks to lend to small businesses, but only £12m has so far been lent, the Daily Mail has reported.

Under the Enterprise Finance Guarantee, the government guarantees 75% of a loan to a small business until 2010.

Business leaders have warned that the failure of the Enterprise Finance Guarantee has left thousands of small firms teetering on the brink of collapse.

Nearly 60% of the workforce is employed by small firms, but the Daily Mail reported only 8% of SMEs said banks were offering them credit through the scheme.

Banks that should be supporting firms through the recession include the Royal Bank of Scotland, of which the state own 70%, and Lloyds, which is 43% owned by the state.