Government has pledged £55m to the Business Finance Partnership scheme and expects match-funding from the private sector to generate a further £55m. Another £45m could be made available in the New Year too, depending on whether the right suppliers can be found to lend the cash.
Government isn't just handing out these millions willy nilly. A number of peer-to-peer lenders and other finance suppliers have beeen bidding for the chance to take the Business Finance Partnership forward. The successful firms have now been announced:
Funding Circle, a peer-to-peer lender, is to receive £20m. Its remit is to enable the British public to lend money directly to small businesses in the UK quickly and easily. For every pound of government money it loans out to small businesses, Funding Circle will lend a pound of its own investors' money.
Zopa has also been given the nod by government. The peer-to-peer lender is one of the most successful firms of its kind in the UK and is on course to lend £90m this year, with hopes to reach £200m in loans by 2013. It will receive £10m to dish out in loans through its website.
Zopa specialises in lending money to builders and traders, demographics that have always struggled to secure capital through traditional sources. 'There are three million sole traders and they find it really difficult to borrow money,' said Giles Andrews, co-founder of Zopa. 'No one specialises in them.'
Andrews expects to offer loans of between £1,000 and £15,000 through the BFP, at slightly higher rates than Zopa's best borrowers enjoy, because of the higher level of risk. Like the other lenders involved in the scheme, Zopa will match the government money pound for pound with cash from savers. All state funding will be paid back after two years.
Next, BOOST&Co, a new fund management company focused on lending to growing and innovative small businesses, will receive £20m to set up a fund that will lend between £1m and £8m to small businesses.
Lastly, Credit Asset Management Limited, a subsidiary of City of London Group plc, which provides specialist financing to the SME sector, will receive £5m to provide asset finance and professions loans.
Vince Cable believes that this initiative could be the first of many credit schemes to help growing businesses. 'Small and medium sized businesses need access to a diverse range of finance options, including non-bank lending,' he says. 'These new forms of finance are still small in scale today but they should, over time, bring additional choice and greater competition to the lending market.'
Government hopes that the Business Finance Partnership will work in tandem with the new Business Bank to help 'tackle these long-standing, structural gaps in the supply of finance for SMEs,' explains Cable. The Bank will be able to issue loans from 2014. Cable is also drafting in a network of 1,000 business finance advisors to help small businesses identify the best type of finance to support their needs.
Government is certainly taking action on the SME credit crunch. But whether these initiatives will be enought to get the UK economy back on track remains to be seen.