Four of the UK's biggest banks have signed up to an "ambitious" lending scheme unveiled by the Treasury to unclog the flow of credit to businesses.
The National Loan Guarantee Scheme (NLGS) will see up to £20 billion of guarantees on unsecured borrowing by Barclays, Royal Bank of Scotland, Lloyds and Santander, which will be able to take advantage of the low rates currently enjoyed by the Government.
The participating banks will pass on the entire benefit that they receive from the guarantees to businesses with a turnover of less than £50 million through cheaper loans.
Banking giant HSBC will not take part as it is already able to raise funds on the wholesale market at a relatively low cost.
Chancellor George Osborne said: "It's only because we've earned credibility with our deficit reduction plan that we have low interest rates, and it's only because of this scheme that we can pass the benefits of those low rates onto businesses."
Small businesses that take out an NLGS loan will receive a discount of 1 percentage point compared to the interest rate that they would otherwise have received from that bank outside the scheme, the Treasury said.
The allocation of guarantees to each participating bank is at the discretion of the Treasury and based on factors including market share, gross and net lending, track record of lending to small businesses and capacity to lend under the scheme.
The first tranche of NLGS guarantees is for a total of around £5 billion, with a minimum allocation per bank of £100 million, while the size and timing of subsequent tranches will be determined by demand.
The provision of guarantees is being administered by the UK Debt Management Office and as a condition of participating in the scheme, the banks have agreed a monitoring framework with the Government.
The banks will have to submit quarterly reports containing data on the loans they have made under the scheme, and demonstrate that they are passing on all the benefit of the guarantees to businesses.