Government Partners With Bailed-out Banks To Help IT Firms

EnterpriseFinancial MarketsRegulation

After helping to support struggling banks, the government has announced that is partnering with some of the same institutions to help fund small IT busineses hit by the credit crunch

Technology companies KeTech and Vamosa have been awarded around £3m from a new government fund designed to support IT start-ups and small businesses during the recession and beyond.

In a statement released this week, business secretary Lord Mandelson announced that KeTech, which provides communication software and services to the rail industry, has been awarded around £2m from the Capital for Enterprise Fund (CFEF). A further £1m has also been awarded to Glasgow-based Vamosa which provides IT systems to the public and private sectors, the government said.

“Ambitious and innovative businesses like these are the lifeblood of the economy but tough credit conditions can make it difficult for them to invest in their future. The Government is committed to ensuring that viable companies have the finance they need to grow,” said Mandelson.

According to John Kearney, chief executive of KeTech, said that his company had been impacted by the recession and the credit crunch.

“Since the current economic crisis began, the lack of available credit, even to viable businesses such as KeTech, has significantly impaired our ability to keep growing. As a result, we turned to the Government for help,” he said. “This will play a critical role in enabling us to secure profitable new contracts which regrettably, until now, we have been forced to turn away.”

The government said that the £75m CFEF is made up of £50m from the government and £25m from high street banks including Barclays, HSBC, Lloyds TSB and RBS. However since the credit crunch has meant that some of the banks concerned have received significant public bail-outs or even been part nationalised, the share of public contribution to the fund could be seen as higher than the government has stated.

Although the exact relationship is not clear as the announcement about funding for KeTech and Vamosa does not make any reference to it explicitly, the CFEF fund appears to be linked to a wider funding plan known as the UK Innovation Investment Fund (UK IIF).

The UK IIF, announced by the Prime Minister on 29 June, will receive public funding from £150 million alongside private sector investment on a “pari-passu basis”, according to Department for Business Information and Skills. “It is the Government’s ambition to leverage enough private investment to create a £1 billion 10 year fund,” the government said.