Wealthy investors are stepping in to fill the funding gap left by banks which refuse cheap loans to smaller businesses.

Last week Lord Mandelson, the business secretary, unveiled a £20 billion plan to help small firms, in which the government will underwrite £10 billion of loans to free up the banks to lend another £10 billion. However, the Confederation of British Industry said it may not be enough.

Firms such as Octopus Ventures and Envestors, which bring together investors or “business angels” and companies struggling to obtain finance, say they have seen a surge in interest. Envestors says it has seen a 20% rise in the number of “quality companies” that have registered with it in the past nine months. It receives between 60 and 100 enquiries a month.

Alex Macpherson of Octopus said: “These are companies that would normally have received funding from banks but are now struggling to survive.”

Gary Robins, of private-equity firm Hotbed, believes there is a window of opportunity to invest in smaller firms at cheap prices that will last only until the end of the year, when the government’s package starts to work. He said: “Based on the experience of previous recessions, 2009 could offer some of the most compelling opportunities which are unlikely to be available when the economy begins to recover.”

The credit crunch has also resulted in a new breed of funds that aim to snap up bargains from distressed sellers in the world of property, art and farmland.

Here we look at how wealthy investors are profiting from the downturn.

BECOMING A BUSINESS ANGEL

One way to take advantage of the finance gap, if you have the spare cash, is to offer the money to the business yourself in return for a stake in the firm.

Envestors, which is a Financial Services Authority-authorised corporate forum and business angel network, claims to have 400 registered business angels who pay an annual fee of £175. For that, Envestors will introduce them to potential small and medium-sized firms.

Envestors says it screens each of the 100 or so businesses that apply each month, to make sure they are worthy of investment.

About 20 of the 400 are seen for interviews and of these four to six are presented to potential investors. “It’s like the real Dragons’ Den,” said a spokesman.

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