Britain’s Top Banks To Form VC Fund To Help Small Biz – Report

Britain’s six largest banks are expected to pledge next week to create a $1.6 billion fund to bailout small businesses stretched by the continuing downturn in the U.K.’s economy, according to a report by the Financial Times.

The fund is to inject equity into companies and better enable them to qualify for loans bridging the so-called “equity gap” that has kept financial institutions from lending to otherwise healthy companies.

The FT report bills the vehicle as a venture capital fund, though it is impossible to know how many early stage companies would compete for the money. The six banks include Lloyds, Royal Bank of Scotland, HSBC, Barclays, Santander UK and Standard Chartered, according to the FT.

The fund is to start small. Each bank is to come up with tens of millions of pounds at first, but increase contributions to between 100 million and 200 million pounds over a few years. Details aren’t clear. Still, fears arose that too few companies would qualify for the money and the smallest of startups would not be among them.

While the fund is clearly a step by banks to improve their public relations in the United Kingdom, it appears to be something of a red herring. Companies facing a cash crunch will likely have a difficult time proving they are credit worthy in an economy struggling to offer clear signs of business opportunity.

As usual, the devil will be in the details.