Credit insurance scheme not necessarily magic bullet

The channel has been warned that the government credit insurance top-up scheme is not necessarily going to be an answer for everyone.

With funding of £5bn behind it, the scheme was one of the highlights of yesterday’s Budget, featuring as one of the main ways that the government is trying to help businesses during the recession.

But a scan of the fine print reveals some features of the scheme that means it will exclude a significant segment of the channel, including those that have had cover removed completely, rather than just reduced.

The first hurdle is timing with the scheme only applying from 1 April. That means that those companies that have already seen cover reduced before that date will not be able to claw it back through this initiative.

Secondly the maximum allowance of £1m for six months is designed to help companies get through a sticky patch rather than provide long-term support.

Finally there are administration fees, meaning that taking advantage of the scheme will cost a couple of percent which will be passed back to the government and to credit insurers through administration fees.

Eddie Pacey, European director of credit services at Bell Micro, said that the move had to be applauded but the channel needed to be aware it was not going to solve all their problems.

“It does offer more of a choice to those businesses that may face reduced cover so that has to be applauded but it is not going to help all the businesses out there,” he said.

Martin Williams, managing director at Graydon, said that because the scheme had been devised hand-in-hand with the credit insurance industry the government was not offering an independent alternative source of insurance.

“This is taxpayers' money so the government is probably not going to throw funds at the high risk, but for those medium risk companies in the channel that are borderline this will be a benefit,” he said.

Fabrice Desnos, chief executive at Euler, has already played down the number of companies that it is likely to have an impact on pointing out that the government recognsises that “some risks will not be worth taking”.

“This scheme is a targeted answer to a multi-faceted problem faced by small businesses in the country. It is a recognition of the strategic importance of credit insurance for some businesses but it will not, on its own, solve all the problems currently faced by small businesses,” he said.

“We don’t expect the take-up for the scheme to be very high but if it makes a difference for a thousand SMEs where credit insurance is a significant component of their business model, then it will have been a success,” he added.

He said that the scheme was designed to help those that had seen credit reduced to “buy themselves six months to manage the situation with their clients and bankers".