Plans for a new Government-backed ‘business bank’ to boost small business lending, announced by the Business Secretary, Vince Cable, have been broadly welcomed by business groups.

Vince Cable said:

“Government makes decisions every day that affect the British economy, but has for too long done this in an ad hoc way. Government needs to be more like business, by making strategic plans and sticking to them.

“Our first part of that plan is lifting the barrier that poor access to finance puts on growth. By helping firms to invest capital, businesses expand, and create jobs.

“But I am also setting out a clear and ambitious vision, a commitment far beyond the usual political timescale that will continue to bear fruit decades later.

“It will give our businesses certainty, allow them to make their own plans, and know that the full weight of Government is behind them. We will work in a strategic partnership with industry, focusing our support on specific sectors. This is our commitment to growth in action.”

Actions outlined in the Industrial Strategy speech include:

  • New Government backed institution to help companies invest (the so-called Business Bank).
  • Government and industry partnerships with strategies for specific sectors by 2013.
  • £165m boost for the skills that businesses need.
  • New Innovation and Knowledge centre to boost commercialisation of research.
  • Reforming government procurement to make sure that businesses have confidence to take long-term investment decisions.

With few details about the Business Bank’s structure and operation emerging, the Forum of Private Business is requesting clarity over how the bank will deal with the central issue of lending risk assessment and affordability.

The Forum is also warning that the spotlight must remain on making the UK’s high street lenders provide a better service to their commercial customers, in parallel to the new bank’s activities.

“This Government-backed business bank is sorely needed to boost competition in small business finance markets, but the question of how it will assess risk accurately is important given the over-centralised, tick-box mentality still displayed by many mainstream lenders, which of course must also play their part in stimulating entrepreneurship and growth,” said the Forum’s Chief Executive, Phil Orford.

“The lack of affordable lending for small businesses is dragging on and risks plunging the UK into a severe recession unless something is done soon to get finance to firms that need. An approach involving the new business bank, commitments from traditional lenders to improve their local services and accountability and support to allow alternative funders less reliant on automated risk systems to compete is required without delay.”