Allen & Overy has advised the U.K. Department for Business, Enterprise and Regulatory Reform (BERR) on the first guaranty documentation to be signed as part of the government's £10 billon ($14.7 billion) working capital guaranty scheme.

The guaranty agreement is between BERR and the Royal Bank of Scotland (RBS) and came into effect on April 1.

The scheme is designed to address the cash flow, credit and investment needs of small and medium businesses by guaranteeing lending by certain banks to U.K. businesses. This will free up regulatory capital for new corporate loans, allowing the banks to lend more to U.K. businesses.

Under the scheme, up to 50% of a portfolio of loans made by the RBS to U.K. businesses will be guaranteed by BERR.

"We are very pleased to see this scheme coming into action as it will provide real help to U.K. companies and support them through the current downturn," said Salim Nathoo, global head of securitization at Allen & Overy. "The constraints on bank credit available for lending to small and medium businesses will hopefully become less severe as more banks follow the Royal Bank of Scotland in taking advantage of this scheme."

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