Small business fund may be hit by banks' reluctance to get involved

18 December 2009

A £1 billion scheme aimed at helping smaller firms gain access to growth finance could be hampered by the unwillingness of investment banks to join up.

Plans for the National Investment Corporation (NIC) were announced in September.

The intention of the fund is to support smaller firms that are struggling to raise capital through conventional lending routes. Of the £1 billion worth of finance, some £200 million was penciled in as coming from a group of investment banks.

Although Treasury officials met with the banks this week, it is believed unlikely that an agreement on contributions to the investment fund will be reached before the New Year.

Just two banks have so far signed up – Lloyds and RBS – and both have benefited from injections of significant amounts of taxpayers’ money.

An apparent source of concern among the banks centres on the structure of the fund. It had been fashioned on the Industrial and Commercial Finance Corporation, created after the Second World War to boost small firms as the economy recovered.

Some banks have expressed worries that the fund may see its resources channelled to fund managers rather than actual businesses.

The Treasury was reported as confirming that Standard Charter will not be taking part in the NIC but insisted that constructive discussions have been held with the other banks and that final decisions on commitments are being worked towards.