London - The British government announced a new aid package on Wednesday to unlock the credit squeeze by offering loan guarantees to small and medium-sized businesses.

The measures, worth 20 billion pounds (29.6 billion dollars), are aimed at reducing the risks of banks lending to companies struggling in the current economic downturn.

In effect, it means that, in return for a small fee, the state insures banks against firms defaulting on repayments.

The scheme, presented by Industry Secretary Peter Mandelson, is limited to one year.

The move follows widespread criticism of banks for "sitting on their hands" by refusing to give credit despite a major government bail-out package in October. (dpa)