£1.5bn fund proposed for small businesses

UK banks have suggested to the Treasury that a £1.5 billion fund be created to invest in small businesses.

A report on the matter has come from the Business Finance Taskforce, which was set up in recent months by six major UK lenders - Barclays, HSBC, Lloyds, Royal Bank of Scotland, Santander and Standard Chartered.

While the government has criticised weak lending since the credit crunch began, banks claim that the decline in lending is 'not their fault' and has come about due to small businesses choosing to borrow less as a result of the financial environment.

This proposed 'business growth fund' - equivalent to about 0.1 per cent of the UK economy's annual output - would be invested over a number of years.

The fund would buy up to a 10 per cent stake in the shares of companies with an annual turnover of £10 million to £100 million. It would also make it easier for small businesses to borrow more money.

Chancellor George Osborne and Business Secretary Vince Cable said it was "an important first step" by the banks.

They added, “We have been absolutely clear that banks need to improve the lending environment for small businesses. It is important that the banks now deliver on these plans.”

Alongside the business growth fund, the taskforce's report also contained detailed suggestions about how to improve customer relations with borrowers and increase the transparency of small business lending.

Proposals to create a network of mentors - who would provide free financial information to small businesses - were particularly popular with the business lobbying organisation CBI.
“Banks have a big job to rebuild effective relationships with companies,” said the group.

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