Regional development agency Advantage West Midlands has announced £6.5 million will be made available for small businesses in the region next year.

The money – of which £2.25 million comes from a European regional development fund grant and the rest from AWM itself – will be made available next year through small business lenders.

The announcement comes as Gordon Brown had to press banks to start lending to businesses again, telling them to honour commitments made as part of the £37 billion bail-out agreed with Government.

Businesses have been hit by a lack of liquidity and an unwillingness to take risks with lending by banks that were previously the main source of funding for businesses.

AWM’s business finance expert Mike Watts said the money included £2 million through the Fair Finance Consortium – a group of West Midlands-based not-for-profit business funding groups.

These included investment trusts like the Aston Reinvestment Trust and the Black Country Reinvestment Society, as well as smaller funds like the Arrow Fund and the Sharia-based Halal Fund, and charities like the Prince’s Trust.

Mr Watts said: “One of the messages we would want to get across is that one of the things we are looking to do through this is ensure that it helps businesses across the region. What’s happened is we provide funding to community development finance initiatives (CDFIs) like these through a thing called the advantage small loan programme that’s due to finish at the end of this calendar year.

“Last week two decisions were taken. Firstly, that we should temporarily extend the ASL programme to at least June next year so that CDFIs and other alternative lenders should have access to funding and, secondly, it was announced that some additional funding was being released now which was being matched by AWM money. That would enable CDFIs and others to apply for what we see potentially being the source of extra funding for them.”

The funding groups have until December 31 to submit proposals for the money, which is budgeted to last until 2013.

Mr Watts said the action would “remove uncertainty over the availability of on-going funding for CDFIs”, which are funded from the private sector, but also backed by money from the regional development agency. “As a result CDFIs will be able to plan and market their activities with confidence and avoid any moratorium on accepting new enquiries and applications.”

Banks were urged to use their £4 billion EU fighting fund to help small businesses. After the £37 billion Government bail-out of RBS, HBOS and Lloyds TSB, the Prime Minister said banks were morally obliged to help small businesses. But fears remain that banks will not want to invest in business – particularly at the smaller end of the market serviced by CDFIs.