Launch of £90m fund to fill gap for small businesses

James Newman said the 90m fund will fill the gap left by banks and other financial institutions which have become more averse to risk as a result of the credit crunch.

Finance Yorkshire is expected to offer loan, capital and seedcorn money to small businesses, with 45m coming from the regional development agency, Yorkshire Forward.

The remainder of the money will come from the European Investment Bank, the EU's long-term lending institution. It is hoped the EIB will rubberstamp the deal in the coming weeks.

It follows on from the South Yorkshire Investment Fund and Partnership Investment Finance funds, which together have channelled nearly 90m of European money into Objective 1 and 2 areas since the middle of the last decade.

These are parts of the region identified by the EU as being less prosperous. The new fund will not be limited to geographic area.

Mr Newman said: "Finance Yorkshire's job is to replicate these two funds with slightly less restrictions on it because it is not dominated by specific European funding."

He added: "It will cover the whole of Yorkshire which will therefore mean that certain places not acceptable before like York, Skipton and parts of Leeds, will now be.

"People won't be postcoded out, which happened before."

SYIF and PIF were set up after the EU identified regions for economic improvement from 1999 onwards. Both funds have been fully invested and the fail rate is lower than expected, according to Mr Newman. They are now managing their portfolios.

The business climate has changed considerably since they were established.

Mr Newman said: "Now we find ourselves with banks restricted from how much they can lend and the terms under which they are lending. The risk profile that banks are prepared to take is much lower. The rate they are prepared to lend at is much higher."

Fund managers, who have not yet been named, will work closely with organisations like the Yorkshire Association of Business Angels and private equity houses once the new fund is up and running, added Mr Newman. "There are plenty of people out there with pockets of money that may want to come in with us," he said.

The fund could also be used to top up loans that banks are considering, he added. For example, if a business wanted to borrow 200,000 for a new building and working capital, the bank could loan 100,000 against the security of the building while Finance Yorkshire could make the riskier loan of 100,000 for working capital.

Nationally, concerns have been voiced about similar funds being raised regardless of need amid fears they could create market distortion.

Yorkshire Forward's assistant director of business, Alex McWhirter, played down the concerns in an interview about the formation of the fund last summer in which he said they would "fill the gap that exists in the market place". He said Yorkshire Forward would succeed in building a model which took into account state aid.

Once launched, 40m has to be invested in South Yorkshire, while the remainder has to be invested across the rest of Yorkshire.

The cutler's main goals

James Newman is Master Cutler and last week reached 100 days in the year-long ceremonial role as head of the Company of Cutlers in Hallamshire.

He has three objectives: to lobby heavily for manufacturing; to improve access to finance; and raise the profile and influence of South Yorkshire in Leeds, where many of the region's decision-making bodies are based.

He said it is "absolutely vital" that Sheffield Forgemasters is successful in its bid for a government loan package worth 140m for a new 15,000-tonne forging press, which would allow it to compete for tenders in the building of the next gener-ation of power stations.

Mr Newman, a well-connected businessman, is also chairman of Brulines, Infoserve, and Straight.