Business bank launches with £300 million pot for small and medium-sized businesses

Businesses struggling with raising finance have been handed a potential lifeline by the launch of a new initiative put in place to facilitate the flow of cash to needy companies.

The first phase of the new business bank, unveiled by business secretary Vince Cable, will see £300 million invested alongside private investors to address long-standing gaps in the small and medium-sized enterprise (SME) finance market.

The money is the first deployment from the £1 billion of new capital allocated to the business bank in the 2012 Autumn Statement.

The focus is on promoting greater diversity of debt finance available to SMEs by encouraging the growth of smaller lenders and new entrants in the market. Investments will be made via new and existing lending channels on a commercial basis.

New research by the National Institute of Economic and Social Research (NIESR) highlights that SMEs have been disproportionately affected in their ability to access finance as a result of the contraction in bank lending since 2008.

Cable says, ‘SMEs are still telling me that access to finance is their number one problem, preventing them from investing and growing. That’s why through the business bank we are developing a range of measures to provide businesses with the power to choose the type of finance that suits them.

‘Today’s £300 million boost shows we are serious about increasing competition and diversity in the business lending market. Establishing a lasting business bank institution is a long-term project, but getting this money reaching SMEs as soon as possible is the first step.’

The government committed £1 billion of new capital to the business bank initiative last year, and, taken together with existing measures means the government is providing nearly £4 billion to help SMEs secure lending.

Although the formal institution will not be operational until next year, the government is ‘determined to make support available to SMEs as soon as possible’ in advance of this.

There are opportunities for government to invest, alongside private investors, in a range of options including existing and new lending channels like smaller lenders, debt funds, asset backed lenders, supply chain finance, peer-to-peer lending and other lending platforms.

Lenders should demonstrate how government could make commercial investments through managed investments or direct capital investments. It is expected that the first transactions will take place by Autumn 2013.

Ben Dowd, business director at O2 says, ‘Small businesses form the engine room of the economy. Support to encourage more investment in this community is crucial and the business bank is a great first step in government and private sector coming together to do this. But more can still be done.

‘It’s not just about funding. Big businesses also have an important role by offering advice, mentoring and support to help Britain’s entrepreneurs turn their ideas to reality and help get Britain’s economy back on the road to growth.’

Applicants wishing to submit proposals can find more information of the application process, together with guidance, on the website.

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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