The government has announced that it is backdating eligibility for its £5bn trade credit insurance scheme by six months to include suppliers who have had their cover reduced since October 2008.

A major problem for small businesses during the recession has been the withdrawal of trade credit insurance, which protects companies against a buyer defaulting on payments for goods and services.

"The extension will give small and medium-sized businesses flexibility to respond to a reduction in their credit insurance cover," said business secretary Lord Mandelson.

The scheme will run until the end of the year and will allow businesses to buy government-backed insurance to either restore cover to its original level or double the value they can obtain from the private sector, up to the value of £1m.