Tories’ secret plan for new lending fund

Author: By Margareta Pagano, Business Editor

A group of entrepreneurs and financiers are working with the Conservatives on
the secret proposals, which they hope to launch in the early autumn. Mr
Clarke’s business team is looking at different institutions ? including a
3i-type model ? to see which would be the most appropriate.

Some of Britain’s leading businessmen, City financiers and venture capital
experts are involved with the working party. As part of its research, the
Tory team is looking at how other countries, particularly the US and Hong
Kong, fund their start-ups and keep lending flowing to small and
medium-sized companies.

Mark Prisk, the shadow minister for small business, said: “We are looking
at what would be the best sort of institution to help funding for small
businesses, from seed-corn to venture capital at the second level of
funding. The £50bn National Loan Guarantee Scheme, which we have also
proposed to underwrite bank lending to businesses, is part of this strategy.
Obviously, 3i [once the UK’s biggest backer of small ventures] is one option
we are looking at. There is a danger the economic recovery will be hampered
unless we get the necessary funding and lending in the banking system.”

Mr Prisk added that the working party wants to establish precisely where the
big funding gaps are in the economy. “Is it businesses which need
£250,000, or is it narrower, those which need £25,000? But the most
important object is to find out how we can get capital flowing through to
revitalise corporate Britain.” They will also be looking at whether the
clearing banks should be forced to put funding behind any new venture.

Historically, the most difficult period for small businesses is after a
recession, because this is when they find it most difficult to get long-term
growth finance, and also when demand for this type of finance is strongest.

Ever since the banking crash last autumn, the Chancellor, Alistair Darling,
has been trying to put pressure on high-street banks to ensure they follow
through on lending commitments given in return for state help. But most are
still charging extraordinarily high interest to small businesses despite the
lowest base rate for decades.

The Government has launched the Rowlands Growth Capital Review, which is also
looking to see whether state intervention is needed to ensure adequate
finance will be available to firms as the economy improves.

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