Small firms to benefit from Liberal Democrat initiated 'business bank'

Liberal Democrat Business Secretary Vince Cable has launched the first phase of a business bank aimed at helping smaller firms struggling to access finance.

A £300m will be initially invested in the venture, the first slice of £1bn of new capital with the first transactions likely to take place by the autumn, although small and medium-sized enterprises (SMEs) were urged to submit an expression of interest by 22 May.

Dr 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 £300m 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 £1bn of new capital to the business bank last year, saying it wanted to encourage the growth of smaller lenders and new entrants to the market.

The bank will not be operational until next year, but the government said it wanted to make support available to small and medium-sized businesses as soon as possible in advance of this.

Dr Adam Marshall, director of policy at the British Chambers of Commerce, said: "We welcome the government's move to increase competition in SME finance by offering £300m to co-invest alongside the private sector.

"Vince Cable is right to say that the creation of a fully fledged business bank is a long-term project.

"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."

Mike Cherry, policy chairman of the Federation of Small Businesses (FSB), said: "It is good news that the business bank wants to get finance out quickly to the businesses that need it. The FSB has long called for more competition in the sector to promote choice and innovation so we welcome the diversity that this institution will create. We would urge alternative finance providers to make an application for the funding."

Hayley Conboy of the Confederation of British Industry said: "This fund demonstrates the government's commitment to supporting the financing needs of smaller and medium-sized businesses, which will help them to grow.

"It will broaden the funding options available to growing firms by boosting the alternative finance provider market. The key to the success of this and other government finance schemes will be to raise business awareness of the initiatives available."