£2.5bn fund to help small business 'is excluding the vast majority'

A FLAGSHIP £2.5 billion fund launched yesterday to improve lending to small firms has been criticised for excluding the vast majority of Britain's SMEs.

The Forum of Private Business (FPB) pointed out that the levels of funding on offer from the coalition government's business growth fund (BGF) exceed the requirements of most small businesses.

The BGF, which will be co-ordinated by the British Bankers' Association, will see the UK's five biggest banks offer "high growth" SMEs investments of between 2 million and 10m in return for equity stakes. But according to the government's own figures, just 1 per cent of small firms have funding requirements of 1m or more.

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."

Colin Borland, head of the Federation of Small Businesses in Scotland, raised concerns that companies north of the Border will be particularly disadvantaged as very few of them would be deemed "high growth".

However he welcomed the fact that banks were looking at an equity model to improve lending to the sector.

Sir Nigel Rudd, chairman of the BGF, said: "I believe the business growth fund offers a real ray of hope to companies that are emerging out of recession… Our ambition is nothing less than to create the household business names and listed companies of tomorrow."