While there certainly is no lack of businesses looking for investment from the banks, will the Business Growth Fund plug the gap?

The Business Growth Fund was established by Britain’s top six banks to invest £2.5bn in businesses with a £10m to £100m turnover.

The Business Growth Fund will invest between £2m and £10m in each deal, with the fund taking an equity stake of between 10 and 50 per cent.

As part of its commitment to build a relationship with the companies it invests in, the Business Growth Fund will also take a seat on the company’s board, VC style.

But not everyone is satisfied with the fund.

Luke Johnson, chairman of Risk Capital Partners – and seasoned entrepreneur – told the FT that the Business Growth Fund is just a “PR stunt” by the banks, which is doomed to failure.

Johnson says that the fund will mean there is less room for “experienced sensibly-priced money”, a view that is echoed by Claire Madden of investment firm Connection Capital.

Madden says that small businesses need bank funding at “reasonable terms” rather than equity funding.

“At this level, companies want bank – not equity – funding,” she says.

Spokespeople for the Business Growth Fund are confident the scheme will be a success, however.

“This is not a typical private equity fund, far from it,” says a spokesman. “A private equity firm would be looking to do a buy out and leverage that investment as quickly as possible. We would be quite happy to work with other investors.”

What do you think of the Business Growth Fund? Will it be useful for UK plc, or is it just another attempts by the banks to appease the general public? Leave your comments below.

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