Business secretary Vince Cable has unveiled a new institution aimed at addressing structural gaps in the supply of finance.

The government step comes on the back of Tim Breedon’s report on non-bank finance which looked at alternative sources of finance for UK businesses.

Private sector funding will be sought, combined with £1 billion of government funding, so that the venture will eventually support up to £10 billion of new and additional business lending.

Cable says that the UK needs a British business bank with a ‘clean balance sheet’ which also possesses a directive to expand lending rapidly.

He adds, ‘Alongside the private sector, the bank will get the market lending to manufacturers, exporters and growth companies that so desperately need support.

‘Its success will not be the scale of its own direct interventions but how far it shakes up the market in business finance and helps to ease constraints for high-growth firms.’

According to the Department for Business Innovations & Skills (BIS), the bank will operate at ‘arms-length’ from the government. Additionally it will be ‘professionally run’ and ‘commercially focused’.

The BIS also emphasises that it is not trying to displace or subsidise banks in any way, and will be directed at encouraging the development of private sector solutions and enabling the market to work properly, and not compete with it.

Gary Wilkinson, chief executive of Cambridge & Counties Bank, says, ‘We strongly welcome this latest government initiative to extend additional liquidity to the UK’s SME community, many of which are struggling to obtain the financial support required to realise their potential.

‘Indeed, our research reveals that in the second half of 2011, over 60,000 loan and overdraft applications from SMEs worth as much as £3 billion, were rejected by banks.’