News from the Department of Business & Innovation

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Small and medium-sized businesses are set to receive a £70 million lending boost following government action

Small and medium-sized businesses (SMEs) are set to receive a £70 million lending boost following government action to increase and diversify the availability of finance.

Three new lenders - Market Invoice, URICA and Beechbrook Capital - will share more than £30 million of government funding to offer SMEs alternatives to traditional bank lending. Each lender has committed to attracting additional funding from private sector investors, with the total expected to boost the pool of credit available to SMEs from these three lenders by more than £70 million.

Business Secretary Vince Cable said: A lack of access to finance is still choking off too many small businesses, preventing them from growing, taking on new staff or investing in new equipment. We are taking a range of actions to support SMEs and shake up business finance markets, including through the new business bank. Today's £30 million announcement is an important boost for non-traditional lenders with creative and innovative solutions. It will increase competition and create a more diverse and balanced market for business lending.

The three lenders receiving a share of the £30 million are:

  • Market Invoice has been awarded £5 million. It is an innovative online platform through which SMEs can raise funds by selling individual invoices to a pool of investors.
  • URICA is being allocated £10 million. It will establish a new supply chain finance platform to provide a consistent channel of cash from institutional investors to SME suppliers by enabling early payment of their bills to mid-sized growth companies.
  • Beechbrook Capital is receiving £17 million. It is a mezzanine fund manager and will establish a new fund to lend to SMEs focused on growth capital.

The funding comes from the small business tranche of the Business Finance Partnership (BFP). Through the BFP, the government committed to provide £100 million of funding for non-traditional lenders in order to diversify the sources of finance available to SMEs and improve competition. Currently, 85 per cent of all business loans are handled by the big four banks.

This is the second allocation of funding by BIS. The first allocation was made in December, when four lenders (Funding Circle, Zopa, BOOST&Co, and Credit Asset Management Ltd) were allocated £55 million. The seven successful bidders announced under this programme are expected to facilitate total lending of more than £240 million to SMEs by attracting private sector investment alongside government's funding. Opportunities to use the small amount of funding remaining in the small business tranche of the BFP, in a way that best provides quick support to UK SMEs and mid-sized businesses, will be identified over the coming weeks. The government already has a number of other measures in place to address access to finance issues for SMEs. Since January 2009 the Enterprise Finance Guarantee has helped businesses secure over £1.7 billion of loans and the £200 million Enterprise Capital Funds programme aims to address the long-term shortage of risk capital for high-growth SMEs.

The Business Secretary made the announcement in a speech at the Federation of Small Businesses. He also spoke about the Chancellor's Budget announcement, which set out the progress of setting up a business bank and how the initiative will start making a difference straight away through:

  • the launch this spring of a £300 million investment scheme to invest alongside private investors in financial institutions and non-bank lending channels to help diversify and expand the supply of lending to SMEs and mid-cap businesses
  • £75 million funding for venture capital investment in early stage SMEs through an expanded Business Angel Co-investment fund, and an extension to the Enterprise Capital Funds
  • continuing the raised level loan portfolio for lending under the Enterprise Finance Guarantee scheme.