- £300 million will be co-invested alongside private sector investment
- Builds on Business Finance Partnership successes
- First phase of business bank programme launched
Small and medium sized businesses (SMEs) struggling to access finance received a boost today as the Business Secretary Vince Cable launched the first phase of the new business bank.
£300 million will be invested alongside private investors to address long-standing gaps in the SME finance market. This money is the first deployment from the £1 billion of new capital allocated to the business bank in the 2012 Autumn Statement. It will build on the success of the Business Finance Partnership to leverage at least the same amount in private sector investment.
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.
Business Secretary Vince Cable said:
Small and medium sized businesses 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 small and medium sized businesses as soon as possible in advance of this.
The government welcomes proposals from a wide range of lenders. 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.
Applicants wishing to submit proposals can find more information of the application process, together with guidance, on the gov.uk website.
Notes for Editors:
1.The application process is open until midday on 28 February 2014, however applicants are encouraged to submit an expression of interest before midday on 22 May 2013.
2.The request for proposals and guidance document published today provide potential applicants with the necessary information to decide whether to submit a proposal to BIS along with information to ensure that their proposal is in accordance with government’s requirements.
3.The programme aims to help diversify and expand the supply of lending to SMEs in a way that mobilises additional funding from private sector sources and channels the funds to businesses in an effective, appropriate and responsible manner
4.The programme builds on the success of the Business Finance Partnership (BFP). The first round of the BFP saw private sector investment into non-bank lending match the government’s £55 million investment, taking the total investment to £110 million. The second round of the BFP saw private sector investment exceed the government investment of £30 million, resulting in a total investment of over £70 million. Successful BFP bidders in round one were peer-to-peer lenders Funding Circle and Zopa, innovative fund management company BOOST&Co, and specialist asset finance provider Credit Asset Management Ltd. Successful BFP bidders in round two were innovative online platform Market Invoice, supply chain finance platform URICA and mezzanine fund manager Beechbrook Capital.
5.Investments will be made on terms and conditions that would be acceptable to a private sector investor and may take a variety of forms.
6.The programme will consider making investments through:
a. Managed Investments: Investing alongside private sector investors into managed lending funds, or other managed lending vehicles, for direct onward lending to SMEs; or
b. Direct Capital Investments: Funding, either by way of equity or debt injection, alongside private sector investors into lending businesses able to use these commitments to increase their lending activity.
7.Government will provide no more than 50% of the total investment on the same terms as private sector investors.
8.The programme will focus on investments that channel financing to viable businesses operating in the UK with an annual turnover below £100 million.
9.The request for proposals and guidance document published today are available online at https://www.gov.uk/investment-programme-to-encourage-lending-to-smes.
10.Roadshows to present the programme to prospective applicants are being scheduled. Prospective applicants should email firstname.lastname@example.org for further details and to register their interest in attending. Places at these events will be allocated on a first come, first served basis.
11.The programme may invest in businesses that offer non-traditional channels of lending that may not be regulated by the Financial Services Authority or the Office of Fair Trading and may carry a higher degree of risk than other investments. By making these investments the government is in no way endorsing or guaranteeing any particular channel, platform or investment, and investors should not, therefore, in any way treat the government’s involvement in an investment as an indication of the investment’s soundness. Private investors, in particular, should consider seeking independent financial advice before making investment decisions of any kind.
12.On 21 March 2013, BIS published a Strategy Update on the business bank.
13.The government’s economic policy objective is to achieve ‘strong, sustainable and balanced growth that is more evenly shared across the country and between industries’. It set four ambitions in the ‘Plan for Growth’ (PDF 1.7MB), published at Budget 2011:
- to create the most competitive tax system in the G20
- to make the UK the best place in Europe to start, finance and grow a business
- to encourage investment and exports as a route to a more balanced economy
- to create a more educated workforce that is the most flexible in Europe.
Work is underway across government to achieve these ambitions, including progress on more than 250 measures as part of the Growth Review. Developing an Industrial Strategy gives new impetus to this work by providing businesses, investors and the public with more clarity about the long-term direction in which the government wants the economy to travel.