HSBC, Barclays, Royal Bank of Scotland, Lloyds Banking Group, Standard Chartered and the UK operations of Santander will contribute to the fund, which will offer support to firms with average revenues between £10m and £100m and a funding requirement of between £2m and £10m.
The fund will take an equity stake of at least ten per cent in its investments, while the participating banks will complement this by helping medium-sized businesses gain access to syndicated debt markets and trade finance.
The average duration of each investment is expected to be around five years.
In a foreword to the report, the six bank bosses and British Bankers’ Association chief executive Angela Knight say they are “determined to change” the way that trust between banks and firms has suffered in the wake of the financial crisis.
As well as the growth fund, the report recommends 16 ways to improve the flow of credit to small firms. From now on, all companies seeking to renew their credit facilities should be able to begin negotiations with their banks at least 12 months before the date of refinancing, the report says.
The six banks will sign up to a new code of practice that will lay out the principles governing fair lending, and the report recommends an independent appeals process for those firms that think a bank’s decision breaches these rules.
A high-level business finance roundtable, bringing together representatives of banks and business groups, should also be created, the report says.
However, the banks involved in the report insisted that subdued demand is one of the main reasons lending is so depressed, and warned that higher capital requirements will push the cost of borrowing higher still.
They said that for every one per cent increase in capital requirements, the price of credit will rise by 13 basis points, for example.
Chancellor George Osborne and business secretary Vince Cable gave the report a cautious welcome and said it “was an important first step”, although advisers to both ministers agreed the banks would need to do more to stem the government’s criticisms.
Meanwhile, the Federation of Small Businesses said the £1.5bn growth fund would do little to help its members, who are normally looking for tens of thousands of pounds of credit – not millions.