Vince Cable set to launch business growth fund

The BGF - which will have a branch in Edinburgh, as well as bases in Birmingham and London - was proposed by Britain's biggest banks in October.

Small and medium-sized enterprises (SMEs) that turn over between 10 million and 100m will be offered funding of between 2m and 10m in return for an equity stake and a seat on their board for a BGF director.

Five banks - Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered - are contributing to the fund, which will be co-ordinated by the British Bankers' Association (BBA).

Stephen Welton, BGF chief executive, said: "Companies of this size have often struggled to secure financing to support their growth plans - too big for start up funding and too small to tap into larger commercial funding. We are responding to that need.

"We will not only provide longer-term finance but will also offer on-going help and advice, working closely with the businesses that we back."

A spokeswoman for the BGF last night that the Edinburgh branch would be based in St Andrew Square. The BGF has been advertising extensively for staff in Scotland, with a total of 30 having already been hired for the UK as a whole.

Frank Blin, executive chairman at accountancy firm PwC in Scotland, said: "The combination of higher borrowing costs, funders' attitude to risk and banks' smaller balance sheets has resulted in many SMEs experiencing difficulties in obtaining finance. The BGF will provide a welcome alternative source of finance for businesses focused on growth and, as a result, could boost investment activity."

But the British Chambers of Commerce has warned that the BGF will only appeal to a limited number of companies, as many businesses will not want to offer the banks an equity stake.

Yet many economists have called for a change from debt funding to equity funding as one of the ways to restructure the British economy.