By Daniel Hunter

Small and medium sized businesses (SMEs) struggling to access finance received a boost today (Wednesday) 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.

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

"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.

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