UK banks back $4bn fund for small businesses

Five of Britain’s top banks are backing a £2.5bn fund ($4bn) launched on Thursday to invest in small and medium-sized businesses that are struggling to attract financing, Reuters reported.

The Business Growth Fund, which will target businesses with an annual turnover of £10m to £100m, follows the “Project Merlin” deal between Britain and its banks to curb their bonuses and lend more in the wake of a sharp downturn in business lending after the credit crisis.

Project Merlin, which involved Barclays, HSBC and part-nationalised lenders Royal Bank of Scotland and Lloyds, would see top banks lend about £190bn to business this year, up from about £179bn.

Those four banks, along with Standard Chartered, are backing the independent BGF, which will invest long-term capital of around £2m to £10m per business in return for an equity stake of at least 10 per cent and a seat on the board for one of the fund’s directors.

“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,” Fund Chief Executive, Mr. Stephen Welton, said.

“We will not only provide longer-term finance but will also offer ongoing help and advice.”

The fund, currently a 30-person team, will work with the British Bankers’ Association, and have offices in London, Birmingham and Edinburgh.