SMEs the target of new government project
The British Business Bank will begin its operations in 2014 as part of the government’s project to boost finance for enterprise, with SMEs the prime target.
The focus is to be on start-ups and early stage companies to encourage investment and safeguard their future as the economy shows early signs of recovery.
Some SMEs can struggle to find finance as commercial banks and investors are unsure of the risks involved and do not want to make a loss.
As a result, the British Business Bank will target these businesses especially, according to its chairman Ron Emerson.
This is great news for many SMEs who will be looking for financial security and stability in the New Year, while it lessens the likelihood of requiring business restructuring methods.
At the same time, the threat of administration or insolvency is also reduced with the primary focus on companies which are looking for rapid expansion.
Dealing with lending limitations
The bank aims to fill a whole in the market that is left by banks that are limited in their lending by tougher financial requirements.
Despite not funding companies directly, the bank will work in partnership with financial institutions to improve access to financial capital.
The bank was launched in October last year and will be fully operational by autumn 2014 once EU state aid approval is received.
Currently, £1.25 billion of core funding is available to assist SMEs, as is £2.9 billion of capital from existing state schemes.
The potential exists for the bank to ask for more money but only after it has shown results, while an additional £10 billion of public and private finance could become available during the next five years.
The Business Bank is modelled on Germany’s KfW, the post-war development bank that has begun to underpin much of Germany’s trade and industry.
However, the UK has a long way to go to match the German bank, as the German group has total assets of €476 billion.
The UK version is set to help companies that turn over less than £25 million, although some with up to £100 million in turnover could also receive assistance.
Lending to SMEs has the potential to massively benefit the economy and the positive signs from elsewhere in Europe suggest the bank could be the backbone of the economy for years to come.
By Phil Smith