£2.5bn loans fund for small firms

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A £2.5 billion fund is to be launched today to provide loans to small and medium sized businesses across the UK which have struggled to raise cash since the financial crisis.

The Business Growth Fund (BGF) has been set up with the support of the UK's largest banks after they agreed to increase lending to small companies following the Operation Merlin talks with the Government.

It will provide long-term capital of between £2 million and £10 million to businesses with turnovers of between £10 million and £100 million.

In return, the fund will take a minority stake in the company and a place on the board.

BGF chief executive Stephen Welton said: "This will give businesses the boost they need to create new products and services, sell to new markets and create new jobs.

"Companies of this size have often struggled to secure financing to support their growth plans - too big for start-up funding and too small to tap into larger commercial funding."

The BGF, which is backed by HSBC, Standard Chartered, Lloyds, Barclays and Royal Bank of Scotland - currently has 30 staff and plans to expand by opening offices in Edinburgh and London.

The launch today at the fund's headquarters in Birmingham will be attended by Business Secretary Vince Cable and Angela Knight, chief executive of the British Bankers' Association.

Operation Merlin saw the Treasury hold protracted talks with the banking industry about how much tax bankers should pay in the wake of the financial crisis. Following the negotiations, the industry agreed to increase lending to small businesses and the Government brought forward the levy on bank's balance sheets.

Mr Cable said: "The Business Growth Fund is ready to make substantial equity investments into ambitious mid-cap British companies who are set to create the business success stories over the coming years.

"To see the fund ready to invest so quickly is greatly encouraging and I look forward to the first successful firms receiving funding."