Businesses thrown funding lifeline

HSBC has become the latest bank to announce the launch of a dedicated fund for small and medium-sized enterprises (SMEs)

The $5 billion (£3.3 billion) fund is available to ‘fundamentally sound businesses’ worldwide, with £1 billion earmarked for the UK and £650 million for Hong Kong. It will be allocated according to the bank’s normal criteria and represents new money, over and above what it would normally lend.

While HSBC’s funding comes from its own resources, other banks have applied for a share of the £4 billion European Investment Bank (EIB) funding package announced in the Pre-Budget Report (PBR) last month.

In his speech, Chancellor Alistair Darling said that seven banks had so far asked for the European money and that £1 billion of it would be available to SMEs by the end of the year. So far Barclays, the Royal Bank of Scotland (RBS) and Bank of Scotland have announced applications to the EIB for amounts ranging from £150 million to £250 million, leaving more than £3 billion unaccounted for (see table).

George Derbyshire, chief executive of the National Federation of Enterprise Agencies, comments: ‘The banks are caught between their own need to bolster their balance sheets  and widespread public and political demands to support growing businesses. With SMEs comprising 97 per cent of the business stock in this country, it is vital that they get the support.’

Other initiatives announced for SMEs in the PBR include a £1 billion temporary Small Business Finance Scheme that will make loans of between £1,000 and £1 million available to SMEs, and another £1 billion which has been allocated to the Export Credits Guarantee Scheme, aiming to provide smaller exporters with short-term working capital.

Regional development agencies have also made funding available to SMEs in financial difficulty.

The government has promised to bring the various schemes together into a single online portal by early 2009.