The British Business Bank (BBB) is launching a programme intended to stimulate lending to small business through incentives for banks.

ENABLE is designed to encourage lending by addressing the high capital consumption required by such lending.

The guarantee will only apply if losses on the guaranteed portfolio are higher than those typical for this type of lending. In this eventuality, the guarantee covers 75% of the ‘net credit losses’ in excess of portfolio income, once first loss retention has been depleted.

The ENABLE Guarantee significantly reduces the amount of capital the lender will need to allocate against the portfolio, enabling greater volume of lending to businesses.

A transaction of £125 million, with Yorkshire and Clydesdale banks, has already been announced. At least £50 million of this will go to previously unfunded areas – including an Emerging Technology Lending Unit and introducing a new Renewables Finance offering.

>See also: Hasty investments to catch EIS unnecessary, says tax expert

Secretary of state for business, innovation and skills Vince Cable said the move is intended to give small business access to alternative funding – which he described as “badly needed”.

“This new guarantee programme will make it easier for challenger banks to lend to small businesses and help to accelerate the transformation of UK banking into a more dynamic and competitive marketplace,” he added.

BBB CEO Keith Morgan said that ENABLE represents “a scaling up of our firepower” in the financial markets.

The funding unlocked by the programme will make a real difference to smaller UK businesses.”

He continued: “We welcome the additional lending and choice of products that Clydesdale and Yorkshire Banks will bring to the market under this first transaction.”

A recent BBB report claims the bank is working with around 80 partners across the UK to help small businesses gain access to funding.

It has supported £1.8 billion of funding to more than 43,000 small businesses across the country – 70% of which is secured from banks outside the ‘big four’.

Further reading on funding: Crowdcube launches seed funding programme for start-ups