The British Business Bank's role in facilitating economic growth by addressing imperfections in SME finance markets

Abstract

This paper presents an overview of the establishment of the British Business Bank; a new government owned financial institution designed to change the structure of finance markets for smaller businesses, so that these markets work more effectively. The paper focuses on explaining the economic rationale for the Bank by identifying how business access to external finance can affect economic growth through facilitating increases in business investment and productivity. The paper provides an overview of recent cyclical trends in SME debt and equity markets, before identifying a number of specific structural market failures affecting different types of finance that prevents some viable SMEs from raising the finance they need. The paper then provides a description of how British Business Bank funding solutions can help to address these market failures.