By Daniel Hunter

The Forum of Private Business is welcoming the announcement of a new business bank to provide £1 billion in small business lending — but warning that the new fund will have to overcome the same barriers as high street lenders, which must also improve their service if the ongoing crisis in credit is to be solved.

The new bank was officially announced by Vince Cable, the Business Secretary, at the Liberal Democrat conference in Brighton. It will provide £1 billion in taxpayer funding to small businesses, but this will be delivered by existing banks and it will not be available for 18 months.

“There’s no doubt action is needed — the banks aren’t lending enough and we know this,” said the Forum’s Senior Policy Adviser, Phil McCabe. “But we really need a dual focus. That is, getting more transparency in high street bank lending and improving ethics in the way banks treat their small business customers, backed by more lending through alternative sources of finance, such as peer-to-peer platforms.”

The Forum is warning that the new fund will have to address the same barriers to small business finance that are displayed by existing banks— including poor risk-profiling and steep lending costs as a result of the increasing over-centralisation of decision making.

Mr McCabe added: “A business bank could help but it won’t be active for 18 months and will operate through existing lenders. This is not going to be a quick fix.

“That said, it will have the capacity to get more long-term lending to growing businesses in time, and the Government’s willingness to put a billion pounds into the scheme might incentivise other big investors to lend to small businesses.

“However, when we surveyed our members in July the majority wanted any new government stimulus to come through non-bank channels, so SMEs may well greet this announcement rather coolly.”

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