THE Prince's Scottish Youth Business Trust is doubling the amount of loan funding it provides for growing businesses in response to signs that young entrepreneurs are being hamstrung by the continued shortage of bank finance.

The business development charity intends to raise the amount it lends under its Growth Fund by £125,000 in each of the next two years, which should result in a big increase in its impact.

The trust expects the budget for the fund to total £500,000 in the 2012/13 financial year. In the last financial year, the Growth Fund used its £250,000 budget to support 25 businesses that it believed had good growth potential.

Past recipients include Brew- Dog, which used a £25,000 Growth Fund loan to help fund the rapid roll-out of its beers from the north- east of Scotland.

Young people in Glasgow are likely to be among the beneficiaries of the process. PSYBT wants to encourage more entrepreneurs from the city to apply for the scheme, which gets double the number of applications from Edinburgh than it gets from Glasgow.

The trust is making the move amid difficult economic conditions. These are posing big challenges for the kind of businesses supported by PSYBT, which works with people aged 18 to 25.

However, Evelyn McDonald, head of growing business at PSYBT, said: “It’s a risky time but we see it’s increasingly difficult for small growing businesses to raise funding. We want to do what we can to fill the gap.”

Ms McDonald said there has been a big increase in the number of applications the trust receives for loans in the past two years. There is no sign of this reversing.

“We were very busy in the last quarter,” she said.

Other comments by Ms McDonald may cast fresh doubt on claims by leading lenders that they are doing their bit for businesses at a difficult time.

Banks have said that they have been meeting the targets for lending to business that they agreed with the Government under the Project Merlin process.

“I am surprised that banks are saying that they are getting the same number of applications and are meeting their targets. My impression is that they are getting less applications as people do not believe they will be taken seriously,” said Ms McDonald.

Critics of banks have claimed that the application statistics they produce are misleading because people may be too scared to contact their bank. They say some fear that an inquiry could prompt a lender to increase the cost of any facilities that are in place.

Ms McDonald added: “Those I know who are approaching banks are not getting anywhere.”

She said PSYBT has been able to increase the size of the Growth Fund because of the support of some “very generous” backers.

These include the Entrepreneurial Exchange network and the City Charitable Trust, founded by facilities management entrepreneur Willie Haughey.

The Growth Fund was started in 2002 using a £125,000 donation from Sir Tom Hunter which helped PSYBT lever in resources from other funders.

The fund has provided 210 Growth Fund Awards to 195 businesses, which previously received PSYBT start up support. PSYBT said this equates to a total investment of £2.46 million and the creation of 290 jobs.

The default rate since the fund started is 12%.

Ms McDonald said a bank might target a rate of 2% to 5%. However, the rate experienced by PSYBT appeared reasonable given that loans may be unsecured and were provided to young people with limited experience.

The PSYBT is hosting a free seminar on young people starting up in business during Glasgow for Business Week on Thursday

Ms McDonald noted that Royal Bank of Scotland provides valuable support to its general operations.

PSYBT also provides loans and grants for young people who want to start businesses.

PSYBT aims to grow the numbers of businesses it supports by 5% to 800 a year by the end of June 2016.