Ministers are considering plans to guarantee up to £20bn of loans to small businesses to help them survive the downturn, the BBC has learned.

The BBC's political editor Nick Robinson said the scheme, which could be announced on Wednesday, was designed to address the severe lack of credit.

In return for a fee, the state would effectively insure banks against firms defaulting on their loan payments.

The Conservatives have urged ministers to underwrite £50bn of loans to firms.

Debt concerns

In recent days, Gordon Brown has suggested that further measures to help businesses struggling to get by in the current economic climate were imminent.

The BBC understands that ministers have met to draw up plans to provide loan guarantees to firms amid concerns that the banking crisis is threatening the survival of thousands of businesses.

The plans being looked at would represent a huge extension of a loan guarantee scheme announced in last year's pre-Budget report.

Under the plans being discussed, the taxpayer would foot the cost of the bill if the loans could not be repaid, with potential implications for the government's already rising debt levels.

However, since the banks will share the risks of these loans with the taxpayer, the cost will be less than the total sum guaranteed.

The Conservatives want a much larger £50bn national loans guarantee scheme to get credit flowing again and help firms being affected by the unwillingness of banks to lend due to the impact of the credit crunch.

They have said that their scheme would not expose the taxpayer to any risk but Labour says that is totally unrealistic.

The development comes after another day of substantial job losses and Conservative claims that Labour's economic mismanagement will saddle every child born in the future with £17,000 of debt.

BBC