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| UK banks 'to propose £1.5bn fund for small businesses' | UK banks 'to propose £1.5bn fund for small businesses' |
| (about 1 hour later) | |
| UK banks are to propose creating a £1.5bn ($950m) fund to invest in small businesses, following government criticism of weak lending. | UK banks are to propose creating a £1.5bn ($950m) fund to invest in small businesses, following government criticism of weak lending. |
| The BBC understands that the fund will be a key proposal in a new report. | The BBC understands that the fund will be a key proposal in a new report. |
| The "business growth fund" would invest the money - equivalent to about 0.1% of the UK economy's annual output - over a number of years. | The "business growth fund" would invest the money - equivalent to about 0.1% of the UK economy's annual output - over a number of years. |
| The report comes from the business finance taskforce, which was set up in the summer by six major UK lenders. | The report comes from the business finance taskforce, which was set up in the summer by six major UK lenders. |
| Leverage | Leverage |
| The BBC understands that the fund would buy up to a 10% stake in the shares of companies with an annual turnover of £10m to £100m. | The BBC understands that the fund would buy up to a 10% stake in the shares of companies with an annual turnover of £10m to £100m. |
| The fund should also make it easier for small businesses to borrow more money as well, according to our business editor, Robert Peston. | The fund should also make it easier for small businesses to borrow more money as well, according to our business editor, Robert Peston. |
| "Those companies that take advantage of the new capital on offer should also be able to lever in additional debt finance," he explains. | "Those companies that take advantage of the new capital on offer should also be able to lever in additional debt finance," he explains. |
| But he cautions that it is important not to get too carried away about the fund's potential. | But he cautions that it is important not to get too carried away about the fund's potential. |
| "I calculate that it will be able to provide risk capital to around 250 middling companies over a number of years," he adds. | "I calculate that it will be able to provide risk capital to around 250 middling companies over a number of years," he adds. |
| Lending conundrum | Lending conundrum |
| The BBC understands that the taskforce's report - which is to be delivered to the Treasury on Wednesday - will also make recommendations on ways to improve customer relations with borrowers and increase the transparency of small business lending. | The BBC understands that the taskforce's report - which is to be delivered to the Treasury on Wednesday - will also make recommendations on ways to improve customer relations with borrowers and increase the transparency of small business lending. |
| Banks stand accused by the government of providing too few loans at too high a cost to small businesses in the UK since the 2008 financial crisis. | Banks stand accused by the government of providing too few loans at too high a cost to small businesses in the UK since the 2008 financial crisis. |
| But banks claim that the fall-off in lending is not their fault and has happened because small businesses are choosing to borrow less in response to the weak economy. | But banks claim that the fall-off in lending is not their fault and has happened because small businesses are choosing to borrow less in response to the weak economy. |
| According to Angela Knight of the British Bankers' Association, the taskforce's job was to "determine to what extent the opposing forces of supply and demand are influencing the flow of finance between banks and businesses". | According to Angela Knight of the British Bankers' Association, the taskforce's job was to "determine to what extent the opposing forces of supply and demand are influencing the flow of finance between banks and businesses". |
| Robert Peston says the new report will tacitly admit that there the supply of credit may become a problem in future. | Robert Peston says the new report will tacitly admit that there the supply of credit may become a problem in future. |
| "Our banks became far too dependent in the boom years on raising finance in asset-backed bond markets which still haven't recovered properly," he explains. | "Our banks became far too dependent in the boom years on raising finance in asset-backed bond markets which still haven't recovered properly," he explains. |
| If this major source of financing for bank lending fails to recover, then the banks could remain dependent on government financial support, simply in order to maintain - let alone raise - their existing level of lending. | If this major source of financing for bank lending fails to recover, then the banks could remain dependent on government financial support, simply in order to maintain - let alone raise - their existing level of lending. |
| Do you think that the small business fund is a good idea? Do you run your own company? What would you like to see in next week's Spending Review? Send us your comments and experiences using the form below. | |
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