Banking giant HSBC poised to snub Osborne’s lending strategy

The credit-easing programme will initially see £20 billion made available to small businesses over the next two years under a National Loan Guarantee Scheme and an additional £1bn to mid-sized firms under a Business Finance Partnership.

The Treasury aims to provide cheap funding to banks on condition that the lower cost of loans is passed on to smaller firms – but HSBC is thought to be reluctant to sign up as it can already access finance at rates similar to the government’s.

Barclays is understood to have reservations about the scheme, but it is expected to sign up, alongside Lloyds Banking Group and Royal Bank of Scotland, as well as the UK arm of Santander.

The scheme – expected to be unveiled tomorrow – is designed to unclog the flow of credit to small and medium-sized enterprises.

The Chancellor previously said the credit-easing proposals would allow businesses to borrow at the same “hard-won” low-interest rates at which the government currently borrows as a result of the UK’s perceived safe-haven status from eurozone turmoil.

Mr Osborne said: “No government has attempted anything as ambitious as this before. With the strain on the financial system increasing, the important thing is to get credit flowing to Britain’s small businesses.”

The Treasury has set a ceiling of £40bn for the measures, so the lending to small businesses could increase beyond the first two years. The National Loan Guarantee Scheme will issue new loans and overdrafts to businesses with a turnover of less than £50 million.

The Chancellor previously said the scheme will trigger reductions of one percentage point in the rate of interest being charged to companies, so a business facing a 7 per cent interest rate to get a £5m loan could instead see its rate reduced to 6 per cent and its interest costs fall by up to £50,000.

The new policy would not increase the state deficit because the government will be obtaining assets in return for its investment.