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UK Government to Provide £10 Billion in Trade Credit Insurance

With businesses across the UK looking to get back to work as soon as possible, the government has stepped in to try and smooth the process. They will provide £10 billion in trade credit insurance to get the market moving again.

What Does This Mean?

Trade credit insurance is used to keep the market moving more freely. This is because it protects companies from the risk of losing money when a company that they do business with goes bust.

Having this insurance in place means that they are paid for the goods or services that they have provided. With so many companies suffering due to the coronavirus pandemic and subsequent lockdown, this is a vital piece of cover right now.

The presence of trade credit insurance will allow companies to deal with each other more confidently than would otherwise have been the case. It has already been noted that there has been a huge increase in claims under this insurance globally.

An estimate from Morgan Stanley put the total payouts across the planet as high as £46 billion. Without this backing from the British government, insurers say that they would be unable to carry on providing trade credit insurance.

The government initiative will take the shape of a reinsurance scheme. This means that companies will continue to take out their insurance directly with insurance companies. Those insurers can then get cover from the government. It will be available until the end of 2020.

It is worth remembering that many companies are still trying to recover money from one another in this period. In many cases, the best solution is to pay collection agency fees to be able to put the wheels in motion.

Government Urged to Write off Business Loans

Former chancellor George Osborne has urged the government to write off the loans that have been made to firms across the country. Billions of pounds have been loaned out to help businesses get through the Covid-19 impact.

Osborne recognises that Treasury officials won’t be keen to write of all this money. However, he points out that having companies struggling to pay back this debt could slow down the economic recovery.

It has been reported that over £20 billion of the £31 billion lent by the government was under the bounce back schemes, to small businesses. In the last week, over £3.8 billion has been loans to 94,000 firms across the country.

The government-backed business loans have a 100% guarantee in place on the capital and interest. Yet, banks are worried that it would look very bad if they had to resort to legal measures to try and get money back from hard-pressed small businesses.

The former chancellor expects that the Treasury will look to extend the terms and keep interest rates as low as possible to allow firms to eventually pay back what they own under the scheme.

He also believes that some form of austerity measures will be needed to help the country to progress.