The new bank, announced in the Autumn Statement last September, has been developed to help SMEs that have so far struggled to access finance either through traditional lending channels or via various other government funding initiatives.
Of the £1bn of capital allocated by the government to the bank, the first £300m will be co-invested with private sector investors to plug the gap in the SME debt finance market.
The £300m Investment Programme, which is now open for applications, aims to promote the growth of smaller lenders and encourage new entrants into the market to widen the choice of lending channels and increase opportunities for SMEs to gain backing.
The government will use the £300m to make commercial investment to stimulate equal investment from the private sector. It is asking for proposals from a broad range of lenders on how it could do that through managed investments or direct capital investments.
Announcing the programme business Secretary Vince Cable said: "Small and medium sized businesses are still telling me that access to finance is their number one problem, preventing them from investing and growing.
"That’s why through the business bank we are developing a range of measures to provide businesses with the power to choose the type of finance that suits them."
"Establishing a lasting business bank institution is a long-term project, but getting this money reaching SMEs as soon as possible is the first step."
The Department for Business, Innovation and Skills (BIS), which is administering the bank, is encouraging expressions of interest to be made before midday on 22 May 2013, although the application process is officially open until 28 February 2014.
BIS anticipates that the first transactions will take place by this autumn.
Head of Policy at the Forum of Private Business, Alex Jackman, said: "Potentially some of this money can go out the door very quickly if proper proposals are submitted.
"There’s no doubt the money is desperately needed in the economy right now, so we urge the government to get the cash out to where it’s needed most, by working with organisations to ensure bids are successful. We certainly don’t want to be seeing any of this money sitting untouched come February next year."
He added: "We must also remember that the new Business Bank won’t be entirely new lending, it will consolidate existing schemes, but we welcome this early new investment nonetheless.
"There’s a pressing need to target those businesses that have viable propositions but to which the banks won’t lend for oblique credit scoring reasons.
Last month, outlining its strategy for the Business Bank, the government revealed stark figures that showed SME lending had falled 25% in real terms since its peak in 2009 and was around 10% lower than in 2006.
