The Business Bank will manage £2.9bn worth of existing Government debt and equity schemes designed to ease access to finance, and deploy a further £1bn to boost areas such as non-bank lending channels, the business secretary said.
“Inadequate access to finance for small and medium sized enterprises is one of the biggest risks to economic recovery. We need bold action to fix what has always been a weakness of the UK economy, and since the financial crisis, it has become an urgent problem,” he said.
“By bringing together management, budgets, spending authorities and the power to alter or create new schemes into one place this Government will be providing a more coherent and comprehensive package of support for businesses.”
“Inadequate access to finance for small and medium sized enterprises is one of the biggest risks to economic recovery. We need bold action to fix what has always been a weakness of the UK economy, and since the financial crisis, it has become an urgent problem,” he said.
“By bringing together management, budgets, spending authorities and the power to alter or create new schemes into one place this Government will be providing a more coherent and comprehensive package of support for businesses.”
The organisation will not directly lend to small businesses but will give advice on suitable facilities and schemes as well as providing cheap wholesale finance for alternative lenders and so called 'challenger banks’.
It will also attempt to develop “new long-term growth finance products”.
More controversially, the Business Bank will involve a renaissance for so called securitisation of debt, which is associated with the kind of financial engineering that led to the economic crisis.
Portions of lenders’ SME loans could be parcelled up the state bank and sold on to markets. This could free lenders to provide more capital to small businesses.
The CBI urged Mr Cable to concentrate on simplification of existing support over creating a “host of new finance initiatives”.
“[The Business Bank] should give confidence to businesses that there is now a long-term solution to plug the finance gap for patient capital in the UK,” said Katja Hall, the group’s chief policy director.
Mr Cable said the bank will start investing in September and be fully operational by the second half of 2014. In addition to the £1bn of public funding, it is hoped that substantial private backers can be found to invest alongside it.
John Walker, chairman of the Federation of Small Businesses, said he was pleased the state bank “will have a clear remit around simplification and competition”.
“For too long, the SME lending market has been dominated by a few big players and businesses are struggling to access finance to grow. Competition should come from more banks on the high street as well as alternative providers.”
It will also attempt to develop “new long-term growth finance products”.
More controversially, the Business Bank will involve a renaissance for so called securitisation of debt, which is associated with the kind of financial engineering that led to the economic crisis.
Portions of lenders’ SME loans could be parcelled up the state bank and sold on to markets. This could free lenders to provide more capital to small businesses.
The CBI urged Mr Cable to concentrate on simplification of existing support over creating a “host of new finance initiatives”.
“[The Business Bank] should give confidence to businesses that there is now a long-term solution to plug the finance gap for patient capital in the UK,” said Katja Hall, the group’s chief policy director.
Mr Cable said the bank will start investing in September and be fully operational by the second half of 2014. In addition to the £1bn of public funding, it is hoped that substantial private backers can be found to invest alongside it.
John Walker, chairman of the Federation of Small Businesses, said he was pleased the state bank “will have a clear remit around simplification and competition”.
“For too long, the SME lending market has been dominated by a few big players and businesses are struggling to access finance to grow. Competition should come from more banks on the high street as well as alternative providers.”
