The Government has come under fire for delays to its loan insurance scheme designed to re-start lending to small and medium businesses.

When Lord Mandelson announced the scheme in January, it was cautiously welcomed by food industry bodies including the Food & Drink Federation (FDF) and the Association of Convenience Stores (ACS), which said access to credit was “a vitally important issue” for small businesses in the sector.

But the loan guarantee scheme, which was due to begin on 1 March, has been hit by delays and will now not launch for weeks. Last weekend it emerged that the Government was still assessing which banks it would work with to guarantee the borrowing and that it would be several weeks before the scheme came into action, prompting heavy criticism from shadow foreign secretary William Hague in this week’s Prime Minister’s Questions.

“The situation with the loan scheme is definitely regrettable,” said FDF communications director Julian Hunt. “It’s an important measure for many companies in the industry. However, we do have some sympathy for the Government’s position – there is a lot going on in the economy at the moment and it is difficult to tackle everything at once.”

The FDF has also asked Lord Mandelson to clarify what help, if any, the government is planning to tackle the problem of dwindling trade credit insurance. Withdrawal of this cover, which protects suppliers against customers defaulting on payment is widespread, with even large companies such as Premier Foods and Bakkavor having their limits cut.

“We fear the current situation could destabilise an already weakened economy and further undermine the competitiveness of our sector,” said the letter.