New Business bank April 2013 – An introduction
The new Business Bank as first announced by Vince Cable last summer was designed to pull under one roof the myriad of government schemes aimed, in all good faith, at increasing lending across the business spectrum. There was a particular emphasis on the SME, the supposed lifeblood of the economy.
In a series of articles we will seek to provide a broader understanding of what the Bank is seeking to provide, more information on the range of schemes avaiable and what needs to be done to access this additional funding.
The Department for Business Innovation and Skills produced a strategy update in March 2013 called ‘Building the Business Bank’, to provide more detail on the aims of the new organisation. This is an extract from this document:
‘The Government envisages the business bank being its lasting champion for ensuring that the finance markets in the UK are serving the needs of UK businesses. The business bank is integral to the Government’s growth ambitions and its industrial strategy. Through the business bank, the Government will demonstrate its commitment to improve these markets and will strive to ensure that the capital deployed by Government is utilised effectively to create the best possible conditions to start and grow a business in the UK.
Access to finance for SMEs and mid-sized businesses has been seriously challenging. Net lending to this sector is contracting. The Government has put in place £2.9bn of commitments through existing schemes to address this and is now going further by bringing them together in the business bank and deploying an extra £1bn of capital. The business bank will manage the combined £3.9bn of Government resources to meet its objectives. By bringing together management, budgets, spending authorities and the power to alter or create new schemes into one place, Government will be providing a more coherent and comprehensive package of support for businesses’.
The objectives of the Business Bank programme
- support the development of diverse debt and equity finance markets for businesses, promoting competition and increased supply through new finance providers;
- increase the provision of finance to viable but underserved businesses, in particular improving the provision of long term finance;
- bring together the management of the Government’s existing business finance schemes, creating a single portfolio and simplifying access for businesses;
- consolidate the provision of, and increase the awareness of, available support and advice to high growth businesses and those needing specialist support; and
- function on commercial terms to use taxpayers’ funds most effectively.
Current Schemes
The table below outlines the debt and equity schemes which will initially be integrated into the bank. It displays the level of Government commitment provided for those schemes and the amount of funding for business which they have the potential to support.
Debt and equity schemes to be initially integrated into the Business Bank
| Active Schemes | Current Government Commitment (£m) | Total market impact including private sector contributions (£m) | |||
| Equity | |||||
| Enterprise Capital Funds |
413 (7) |
690 (based on current trends) |
|||
| Business Angel Co-Investment Fund |
100 |
400 (based on current trends) |
|||
| UK Innovation Investment Fund |
150 |
330 (8) |
|||
| Aspire Fund |
13 |
25 |
|||
| Debt | |||||
| Enterprise Finance Guarantee |
425 (maximum cost to BIS) |
3,270 (9) |
|||
| Start-up Loans |
110 |
110 |
|||
| Business Finance Partnership (Mid-cap) |
1,100 |
2,200 (minimum amount) |
|||
| Business Finance Partnership (SMEs) |
100 |
200 (minimum amount) |
|||
| Subtotal – Active Schemes |
2,411 |
7,225 |
|||
| Post-investment phase schemes | |||||
| Equity |
350 |
984 |
|||
| Debt |
147 |
178 |
|||
| Subtotal – post investment phase |
497 |
1,162 |
|||
| Grand Total |
2,908 |
9,549 |
|||
7 Defined as £238m already committed, add £150m in remainder of Spending Review period and the new £25m
8 UKIIF is invested into an underlying series of private sector funds. The total size of those funds, so far, is approximately £2.2bn.
9 EFG is calculated as £1.7bn drawn down at Dec 2012 plus a further £1.5bn which Government has agreed to support over the current spending review period
Comment:
The aims of the new Business Bank are first class in my view. The number of schemes that have been announced by both this government and the previous one, as can be seen from the previous chart, have only served to cause significant confusion amongst finance hungry businesses. Anything that can be done to clarify the range and availability of government support to promote access to business finance has to be a good thing. In this series of articles I will undertake to lift the veil of confusion from these government schemes, and provide a greater understanging of where and how they can be accessed.
In addition, the aim of increasing the firepower of the alternative funding providers has significant merits, not only that the products themselves have great potential, but also that these new businesses will serve to create greater competition and therefore choice for the business community.
These positive views are shared by both the CBI and the EEF:
Katja Hall, the CBI’s chief policy director, said: “This should give confidence to businesses that there is now a long-term solution to plug the finance gap for patient capital in the UK.
“Businesses didn’t want a host of new finance initiatives introduced as part of the business bank but simplification of existing support.
“Bringing all government financial support and advice initiatives under one roof will improve access for smaller firms, helping them fulfil their growth potential.”
Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said: “Government intervention to support lending to businesses is still a high priority for growth, so it is positive to have some detail on the new business bank. Acting as a central point to focus for all existing finance initiatives should make the whole offer to business clearer and more accessible.
“As we saw in the Budget, there are limited new resources so maximum firepower needs to be deployed to tackle the biggest obstacle holding back SMEs (small and medium sized enterprises) getting the finance they need to invest and grow.”
If you are having problems raising finance or have any comments or any of your own experiences you would like to share on this subject, please contact me at john.thompson@transcapital.co.uk or on 0845 689 8750.
Image by: Abb3y24