The decision by the government to extend credit insurance facilities has been welcomed by those in the channel that have been pushing hard for increased assistance.
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In the budget the chancellor Alistair Darling unveiled plans to help businesses through the current difficulties acknowledging that reductions in credit insurance had hit companies hard so it would top up its credit insurance scheme.
The Trade Credit Insurance Top-Up Scheme will be funded to the tune of £5bn offering cover to those companies which have had it reduced.
The scheme allows for six months worth of top up from £20,000 up to £1m per supplier. Companies where credit has been pulled completely will not be targets for help.
Euler Hermes has been working with the government to come up with the initiative and its chief executive of Fabrice Desnos said that the scheme would return confidence to the supply chain.
"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.
Expectations that the government would make a positive announcement around credit insurance have been circulating since last month.
Reacting to the announcement, Phil Jones, sales and marketing director at Brother UK, said that the announcement of a state guarantee scheme was a "welcome relief" to channel companies.
"The channel has been severely crippled because of a lack of confidence shown by credit insurers. Chopping and changing their cover on a week by week basis has created a very dangerous domino effect - cover has been reduced, credit has become squeezed and confidence has collapsed throughout the whole chain," he said.
"The VAT cuts announced late last year were very much a short term solution to the downturn in spending. This scheme seems to fill a structural gap in the system and should have much more far reaching consequences. It's only right that our government should be providing support for perfectly respectable businesses that have been treated unfairly by their credit insurers," he added.
The channel has been hit by the withdrawal of credit from the likes of Euler Hermes as the credit insurers look to reduce their exposure in the channel.
In addition Darling said it would make it easier for companies that are on the brink to claim back taxes on profits made in the last three years, which could help keep them trading.
"Many viable companies face temporary difficulties because of a shortage of credit so toady I am extending the help which allows loss making companies to reclaim taxes on profits made in the last three years. This help, which will lead on overage to repayments worth £4000 each year, will now be available for two years until November 2010," he said.
"Well over 100,000 businesses will have full current losses entirely wiped out," he added