This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The government is today asking for applications to manage £500 million of its investment available through the Business Finance Partnership.
The government is today asking for applications to manage £500 million of its investment available through the Business Finance Partnership (BFP).
The BFP aims to ease the flow of credit to small and mid-sized businesses in the UK by diversifying their sources of finance and making them less reliant on bank lending. It is part of a £21 billion credit easing programme being taken forward by the government to open up new channels of finance for businesses and use the UK’s budget credibility to pass on the benefits of current low interest rates.
Today’s announcement follows a highly successful first round of bidding, which attracted 24 proposals from managed funds. Budget 2012 confirmed a shortlist of seven funds to potentially receive investment through the BFP of up to £700m.
Up to £400 million more will be invested by the Treasury through managed funds that lend directly to mid-sized businesses. The Department for Business, Innovation and Skills will invest up to £100 million through non-traditional lending channels that lend directly to small businesses. It is expected that these channels could include mezzanine finance funds, supply chain finance schemes and peer-to-peer lenders.
The Chancellor said:
These proposals are the next part of our credit easing programme, passing on the benefits of Britain’s creditworthiness to businesses, and opening up new options of finance for them. They are only possible because of the credibility that Britain has earned - and the low interest rates that come with it - as a result of taking the tough decisions needed to deal with our debts.
Business Secretary Vince Cable said:
As businesses are continuing to struggle to get credit from their banks, developing alternative lending channels so firms are less reliant on banks is essential.
The Business Finance Partnership will help to develop these channels over the medium term so businesses seeking credit have more options available to them. Our aim is to create a more diverse financial infrastructure which better serves the needs of our small and medium-sized companies.
Notes for Editors
At Autumn Statement 2011, the Chancellor announced a £21bn programme of credit easing measures: the £1bn Business Finance Partnership (BFP) and the £20bn National Loan Guarantee Scheme.
BFP aims to increase the supply of capital through non-bank lending channels and, in the longer term, to help to diversify the sources of finance available to businesses. The National Loan Guarantee Scheme allows banks to raise up to £20bn of funding guaranteed by the government to lend directly to smaller businesses with turnover of up to £50 million.
A first tranche of proposals, for BFP investment in loan funds, was requested by HM Treasury in January 2012. At Budget 2012, the government announced that it intends to invest up to £700m with some or all of seven shortlisted loan fund managers who target mid-sized businesses. Budget 2012 also confirmed an additional £200m for the BFP, making a total £1.2bn, including a £100m small business focussed tranche.
The government is today issuing two Requests for Proposals to manage the remaining £500m available through the BFP. HM Treasury is focusing on co-investment in loan funds that can lend directly to mid-sized businesses with a turnover of up to £500m. The Department for Business, Innovation and Skills (BIS) is conducting the small businesses tranche of the BFP which will focus on co-investing through non-traditional channels such as peer-to-peer platforms, supply chain finance and mezzanine finance that can reach businesses with a turnover below £75m. Both funds and lending channels should note that, provided turnover is below an average of £75m over three years, the end recipients of the scheme can be any sort of UK small businesses (partnerships, private companies, employee owned) operating anywhere in the UK and in any sector. HM Treasury and BIS will invest up to a maximum of 50% in any fund or channel.
Supply Chain Finance broadly refers to finance instruments which help businesses in a supply chain improve their cash flow by managing payments to their suppliers. These techniques can be as simple as extending payment terms to suppliers, or as sophisticated as an end-buyer extending the strength of their credit rating to businesses within their supply chain who can then use it to borrow cost-effectively from a financial institution.
Peer-to-peer lending is a means by which borrowers and lenders can transact directly with each other without traditional financial intermediaries such as banks; this is mostly done using an online platform.
Mezzanine finance is a hybrid of debt and equity financing that is often used to finance high growth businesses. Typically, the loan takes the form of subordinated debt, the interest on which is often repaid at the end of the term. The return to the lender will be higher than for senior bank debt, but lower than for equity.
The Requests for Proposals published today provide potential Managers and channels with the necessary information to decide whether to submit a proposal to HM Treasury or BIS along with information to ensure that their response is in accordance with Government’s requirements.
It is intended that the investment of this tranche of BFP will be made available to businesses over the next two years.
BIS will be represented in this process by Capital for Enterprise Limited (CfEL), the company established by BIS to make, monitor and manage Government’s loan and venture capital fund investments and loan guarantee proposals. Further information can be found on the CfEL website (opens in new browser window)
Businesses that offer non-traditional channels of lending 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.