Fund to back firms fails to lend a penny but costs £500,000

Finance Yorkshire – a venture capital fund unveiled by the previous government early this year – was expected to start investing in firms in early spring but has rejected more than 95 per cent of applications for loans and not been able to complete any deals because of delays getting European funding.

Fund managers say the European Investment Bank – which is supplying a 45m loan to provide half the finance – got "spooked" when the coalition Government was formed and began pledging to cut spending.

But Whitehall officials are understood to have written to the Bank to assure them the other 45m – from regional development Yorkshire Forward and a grant from the European Regional Development Fund – is not in danger and Finance Yorkshire hopes to finally issue its first loan soon.

Business Minister Mark Prisk revealed Finance Yorkshire already spent 400,484 in 2009/10 on set-up costs including IT equipment and upgrading premises. A further 114,696 was spent on running costs, including staff salaries. It was officially launched on March 12, and so far it has processed 306 applications, of which 293 have been turned down. The other 13 were approved in principle and are going through the final stages before being confirmed.

Brigg and Goole MP Andrew Percy said he had been approached by a business in his constituency who wanted to borrow money from the fund, which will offer investments of between 15,000 and 2m, but had been turned down.

"What amazes me is how long it seems to be taking to get set up and running," he said. Finance Yorkshire chairman James Newman said the fund, which aims to help fledgling businesses and firms seeking to expand by offering a range of investments, is hoping to sign off its first deals in the coming days.

"The whole fund got delayed as a result of the election, and then the European Investment Bank (EIB), which is providing us with the balance of the funds – we can't put the fund together without their bit of it – got spooked when the Government announced a complete review of spending and also the potential abolition of the regional development agencies.

"There have been a number of discussions between ourselves, government departments and EIB over the last few weeks as to how it's all going to be worked."

Former Yorkshire and Humber Minister Rosie Winterton who unveiled the fund said: "It's always been very difficult to get venture capital funds for the regions, and therefore the Labour government brought about this fund in order to provide support to businesses in the region.

"It would be very unfortunate if the Government's aversion to any sort of regional policy has got in the way of this."

Mr Prisk said: "It is anticipated that loans to business will be completed shortly, following the imminent completion of a European Investment Bank (EIB) loan to Finance Yorkshire."

The issue of regional venture capital funds – which could provide loans or take stakes in companies with high prospects for growth – was discussed at a meeting of ministers, business leaders and local authorities from around the country yesterday to discuss Government plans to revamp economic development in the regions.

Although Ministers have said they want venture capital to be managed by the Government centrally, delegates were invited to make a case for keeping a regional fund when they submit proposals in the autumn for how to replace regional development agencies, which are to be axed.