A £1.5bn fund to provide equity for small business will have “very limited take up” among recruiters, according to Gary Edwards, head of growth & acquisition finance at Investec Specialist Private Bank.

Barclays, RBS, Lloyds, HSBC, Santander and Standard Chartered Bank have all committed to establishing a £1.5bn fund to provide equity for firms with turnover of between £10m and £100m.

The banks would take a minimum equity stake in any business of 10% and the average duration of the investment is expected to be five years.

But Edwards told Recruiter that bigger banks should become better lenders, not reinvent themselves as equity providers.

Edwards says: “Recruitment companies have highly entrepreneurial management teams that understand value creation; I would expect a very limited take up. Worst is that it will be used by banks when they are renewing facilities and customers have limited choice.

“This seems to be poorly thought out as it would make debt more costly and complex to arrange with many unintended consequences. It is an enormous disincentive for owner mangers who may be asked to give away equity in exchange for access to traditional debt.

“Whether intended or not, it may also be a mechanism for banks to limit future competition and will make future planning or exits for owner managers more difficult with banks as minority equity owners.”

Tom Hadley, director of policy and professional services at the Recruitment & Employment Confederation (REC), told Recruiter: “The reality is there are a lot of options out there so how do you know what to choose? There are opportunities for recruiters to look at funding streams carefully but you need to look at them carefully but the devil is in the detail. Be careful of what you sign up to.

“We’re quite optimistic that our sector will grow again. There are some positive signs and banks will be keen to invest in the industry. Recruiters will need to make sure they do not sign away too much of their business.”

Tim Evans, managing director at Boxington Corporate Finance, adds: “The recruitment sector is in real need of funding beyond debtor financing in order to make the most of growth opportunities of returning markets.

“The new fund could address a very large funding gap. However, there will be many sectors looking to access the fund, so only the most credible recruitment businesses and growth plans are likely to benefit.”