Gordon Brown has persuaded European leaders to inject emergency funds of up to £25billion to help the continent’s small businesses through the global financial crisis.
The Prime Minister’s successful call in Paris for the early release of the European Investment Bank’s budget coincided with plans at home to help small traders, including contractors.
In its pledge last week to cover savers’ first £50,000, the Financial Services Authority said it would consider doing more to help micro businesses than just extending this guarantee to them.
Under current rules, these ‘small businesses’ – firms with fewer than 51 employees, would be treated like savers and have a guarantee of £50,000, up from initial cover of £35,000.
This maximum payout would be made to each party on a joint account but only one account would be eligible, as the sum stays the same regardless of how many accounts.
A spokeswoman for the Financial Services Compensation Scheme explained:
“The same levels of compensation apply whether the claimant is a private
individual, small business, or a small company.
"If you had your personal and your business account with the same institution
and it failed, you would be protected up to a maximum of £50,000, across both
accounts.”
The very real prospect of firms losing their entire savings if a bank collapses is even higher for contractors and sole traders, as they often have more than one account at more than one bank.
Under the current compensation rules, a small company or trader is eligible if they meet two of the following criteria - a turnover of £6.5m or less, fewer than 51 employees, and a balance sheet of £3.25m or less.
“As an indicative guide only, for the purposes of deposit and investment claims, smaller companies are protected,” the FSCS spokeswoman said.
“Claims are paid via cheque [and] FSCS aims to deal with all claims within 6 months.”
Both the PM, with his financial package, and the FSA, which agreed to consult on helping small firms further, seem to be working on heading off ruin for small firms if more banks fail.
Some commentators say the decision to raise the guarantee for savers (and small firms), combined with action from both the regulator and Mr Brown, are proof that the crisis is worsening.
Oct 6, 2008
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