£300m made available to SMEs as Government's 'business bank' launches

Out-Law News | 15 Apr 2013 | 9:44 am | 2 min. read

The Government will make £300 million available to smaller businesses that are struggling to access finance through traditional lenders as part of the first phase of its 'business bank', it has announced.

Applications for finance are now open to businesses operating in the UK with an annual turnover below £100m. The Government allocated £1 billion to the bank in the 2012 Autumn Statement. Its £300m initial investment will be matched by private investors.

The Department for Business, Innovation and Skills (BIS) said that it was "determined" to make funding available to businesses as soon as possible. It expects that the first transactions will take place this autumn, although the formal business bank will not be established until 2014.

"Small and medium-sized businesses are still telling me that access to finance is their number one problem, preventing them from investing and growing," said Business Secretary Vince Cable. "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."

He added that making the first tranche of funding available earlier than anticipated "shows we are serious about increasing competition and diversity in the business lending market".

Cable announced the creation of a state-backed business bank in September 2012, as part of the Government's wider industrial strategy. It will not be a 'bank' in the traditional sense, but rather will consolidate new and existing lending schemes. These could include lending made available through smaller 'challenger' banks, debt funds, asset-backed lending, supply chain finance and peer-to-peer lending.

The £300m fund is intended as an extension of the existing Business Finance Partnership (BFP) programme, which allows businesses to access funding directly from private investors rather than banks. The Government invested £55m into the first round of the BFP, which was matched by private investors; while £70m was made available by both the Government and private investors under a second funding round. Successful BFP bidders included peer-to-peer lenders Funding Circle and Zopa, online platform Market Invoice and Beechbrook Capital, a mezzanine fund manager.

The business bank will facilitate investments in the form of managed investments or direct capital investments, BIS said. Managed investments will see the Government invest into a managed lending fund or other lending vehicle alongside private sector investors, for direct onward lending to businesses. Direct capital investments could take the form of equity or debt. In either case, the Government will provide no more than 50% of the total investment, on the same terms as private sector investors.

BIS has made a number of guidance documents available to lenders interested in becoming accredited under the scheme, and is planning a series of 'roadshows' to explain more about the programme.

Business leaders welcomed the Government's announcement, but urged them to "think bigger" when planning the business bank's long-term growth.

"Vince Cable is right to say that the creation of a fully-fledged business bank is a long-term project," said Dr Adam Marshall at the British Chambers of Commerce (BCC). "However, for the business bank to be a game-changer, it urgently requires both vision and scale.

"To that end, we continue to urge ministers and the Bank of England to 'think bigger' when it comes to the bank's investment capital, to ensure the bank can operate independently of Whitehall, and allow it to work directly with dynamic new and growing companies as soon as possible, and for the long term," he said.

Editor's note 15/04/13 This story was amended to clarify the nature of the Government's guidance.