What is the government’s business bank?

We take a closer look at the much anticipated £1bn scheme and how it will support start-ups and small businesses seeking funding

What is the new government-backed business bank? And how will it help start-ups and small businesses?

Speculation has been rife about business secretary Vince Cable’s plans since he first confirmed in September 2012  the bank would become a reality. The one thing that certain was its purpose: to help small business owners who are struggling to secure finance.

After drip-feeding us information about plans for the bank in the months that followed, including revealing that £1bn would be pledged to the venture in December 2012, Cable has finally launched the first phase of the scheme.

We’ve drawn together information about the much-anticipated business bank, to provide you with a rundown of the government’s plans.

Phase one

In April 2013, Cable announced phase one of the scheme, which comes in the form of a £300m fund, set to be match-funded with private investment. This should ensure £600m will ultimately find its way to small businesses.

The aim of the fund and of the business bank in general is to make small business owners more aware of alternative finance options available to them. Consequently, the government is aiming to invest the £300m into a wide range of lending platforms, which will in turn lend to small businesses. The targeted finance companies include:

  • Debt funds
  • Asset backed lenders
  • Supply chain finance
  • New bank lenders
  • and peer-to-peer lenders

Lenders can apply to receive the funding from the government through two different channels.

  • Managed investment: The money will be invested into lenders and then directly distributed to small business owners.
  • Direct capital investment: The government will provide equity or debt investments to lenders. They in turn will use the money to grow their business and provide a lending service to small businesses.

Lenders have until February 28 2014 to register their interest in distributing the funds, but the government is asking that companies aim to register by May 22. It is expected that the first allocations will be made in autumn 2013 at the earliest.

The business bank will only distribute funds to lenders who provide finance to businesses with a turnover under £100m.

Long term project

While the £300m fund has finally set the wheels in motion of the £1bn business bank, Cable has highlighted that this is just the first step of a much bigger project.

It is hoped that the business bank, will be a “lasting institution”, which will open up the lending market to small and medium-sized businesses and make them more aware of their financing options, while also drawing together various government-led financing schemes.

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