Small firms are set to miss out on a potential £2.5bn bonanza, the Forum of Private Business (FPB) has warned.
Launched by the UK’s largest banks and the British Bankers’ Association, the Business Growth Fund allows banks to take stakes of between 10 per cent and 50 per cent in "high growth" businesses with turnovers between £10m and £100m in return for investments of £2m to £10m.
Under the terms of the fund, banks have committed to provide £1bn of equity capital over three years and £1.5bn over 10 years.
But recent figures from the Department of Business, Innovation and Skills (BIS) claims that just five per cent of SMEs have funding requirements of £1m or more, with many needing between £10,000 and £24,000.
Also, just one per cent of SMEs are looking for an equity finance deal, with the majority preferring not to sacrifice a stake in their business and seeking debt lending in the form of bank loans (40 per cent) and overdrafts (35 per cent), BIS claimed.
As a result, the FPB concludes the Business Growth Fund will not help the majority of firms struggling to get the finance necessary to compete for new contracts, create jobs and drive growth.
Alex Jackman, senior policy adviser at the FPB, said: “The Business Growth Fund aims to bridge the clear gap in funding for ‘high growth’ firms identified in the Rowlands Review back in 2009, and so is certainly a welcome step and one that is long overdue.
“But we cannot allow this to overshadow the real problem – the lack of affordable lending being made available by banks to start-ups and other small businesses – those that are not eligible to benefit from the fund. There is a real danger that these firms will be left behind and that would be disastrous for the economy.”
Jackman added: “We need much better debt finance in the form of cost-effective lending in parallel to this kind of equity investment. So far, efforts to make this happen – such as a lending code that is not binding, targets that many banks are simply not meeting and mentoring and appeals schemes of unproven merit – are just not enough.”
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