By Marcus Leach
Vince Cable has announced that the government is to put £1 billion into setting up a bank designed to increase the amount of lending to businesses.
Speaking at the Liberal Democrat conference the business secretary said that the additional funding will help many small and medium-sized companies (SMEs) who have struggled for credit since the financial crisis.
The Government will build a single institution that will address long-standing, structural gaps in the supply of finance, identified in Tim Breedon’s report on non-bank finance. It will bring together in one place Government finance support for small and mid-sized businesses.
"We need a new British Business Bank with a clean balance sheet and an ability to expand lending rapidly to the manufacturers, exporters and high-growth companies that power our economy," Mr Cable said.
"Today I can announce we will have one. I am working with the chancellor to develop a state-backed institution that will combine up to a billion pounds of new government capital with a larger private sector contribution.
"This will then apply further leverage through guarantees to support up to £10bn of finance to SMEs [small and medium enterprises] and mid-sized business - a significant portion of all the lending available."
The news of a 'British Business Bank' has been greeted with differing views in the business world, although the early general consensus is that it is positive news.
"By bringing together all existing support into a one-stop shop, and by increasing the supply of capital to firms that want to grow long-term, the business bank has the potential to support lending and help small and medium-sized businesses to grow," John Cridland, CBI Director-General, said.
"The bank could also play a vital role in packaging up and selling debt from medium-sized companies, allowing them to access vital finance streams.
"The Government must now work swiftly to gets the bank up and running so that it can start helping small and medium-sized businesses as quickly as possible.
"The big gripe today from many growth businesses is a gap in the market for long-term investment finance.
"The new £1bn wholesale fund will enable banks to provide “patient capital” to high growth businesses."
Terry Scuoler, Chief Executive of EEF, the manufacturers’ organisation, said such an announcement was warmly welcome at a time when businesses are desperate for funding.
“Dr Cable gave little extra detail away today on the proposed business bank but, the focus on generating additional lending for UK SMEs is welcome at a time when our economy is crying out for every possible pound of additional investment," Scuoler said.
"In the longer term, a landscape with more options outside of banks and more competition within banking has to be the aim to increase the supply of finance on reasonable terms to SMEs.”
Rob Donaldson, Baker Tilly’s Head of M&A and Private Equity, was a little more cautious, saying the news was dampened by a continued lack of understanding of the entrepreneur mindset.
"Clearly anything that supports business is to be welcomed, however there does seem to be some degree of misunderstanding about what really makes entrepreneurs tick," Donaldson said.
"What entrepreneurs really need is stability so that they can make their business plans safely in the knowledge that the environment around them - particularly the tax and regulatory environment - is not going to shift.
"So whilst this support is welcome, it is outweighed by the constant and very public debate within the coalition about taxation — in particular wealth taxes, mansion taxes, and capital gains tax, which is apparently back on the agenda despite having changed on a regular basis in recent years. These debates of course need to happen, however I think it would be helpful if they could take place in private rather than played out in the media so that businesses are not distracted by such airing of ideas."
Christopher Shaw, CEO of the alternative finance providers, Platform Black, was, maybe a little too obviously, was very anti the business bank.
"The idea of a bank for businesses is no bad thing, but for now it's just that – an idea," he said.
"While we welcome any initiative to get banks lending again, 18 months is a lifetime for most SMEs, especially in this climate. SMEs need finance now, not in 2014. Many will be long gone come 2014.
"We have had no end of promises, so SMEs won't be hanging out the bunting on the back of this new Government-backed bank.
"The Business Secretary has been talking big numbers, but what concerns me is that the loans will apparently be offered through existing lenders.
"Look at Project Merlin. That relied on lenders and died a death.
"The addition of another scheme will certainly create further confusion among SME directors. Lending schemes are ten-a-penny at the moment but how many of them are making any material difference?"
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