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HomeVince Cable's Variety Show for Business

Vince Cable's Variety Show for Business

The Government has announced £300m of funding for businesses to pave the way for the long-awaited Business Bank. Will this be the start of greater stability for the UK's businesses or will the real benefit of the Bank only be revealed in the long term?

The big high street banks' recent claims of reduced loan demand from the UK's businesses (particularly small and medium enterprises) clearly shows most businesses have given up on traditional bank loans to solve their problems. Now it seems they're not alone as the Government is looking elsewhere for a funding solution. Perhaps after schemes such as Funding for Lending and Project Merlin showed such a lack of success the powers that be have given up on the penny-pinching giants and their latest plan, in the form of the Business Bank, is aimed squarely at the alternative options.

Business Secretary Vince Cable announced his intentions to create a state-backed business bank late last year but now it seems the bank won't be ready to run until 2014. However, no doubt in response to impatient noises from the business community, Cable has welcomed applications for portions of £300m of the planned £1bn total starting now.

Cable said “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."

This money won't be available through the usual big UK banks however but will only be granted alongside an, at least equally matched, private sector investment. In this respect the Government is viewing the Business Bank as an extension of the Business Finance Partnership that provided £110m of funding to businesses in 2012. This means the money will be given to existing lenders rather than directly to the businesses that need funding so those impatient for vital funding will have to wait a little longer.

However, this delay in the supply chain may not be a disadvantage in the long run. For some time now concerns have been raised over UK businesses' reliance on the big high street banks for funding when it would be far healthier to have a wider and more diverse platform of financial support available. This reliance has, of course, been created through a lack of alternatives but now that the traditional banks are not lending enough to businesses the disadvantage of such a narrow range of choices has hit home. For this reason the Business Bank will, hopefully, be serving a double purpose by supporting businesses and creating stronger alternatives to traditional bank loans.

Reports say the Bank will be taking applications for the £300m from a variety of existing lenders such as debt funds, asset backed lenders, peer-to-peer financiers, challenger banks and supply chain finance among others.(See People4business's look at the alternative solutions)

Whether or not funding in partnership with the Business Bank will make existing lenders any less cautious with their loans remains to be seen, but, even if the Bank doesn't create a more stable future for UK businesses at least it will have potentially created more options for future companies. It is expected the first will take place in Autumn this year so watch this space.

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