AIB and the European Investment Fund are close to setting up a new development capital fund for Irish small and medium enterprises.

The fund would provide funding for riskier projects, which is not generally available, said Mr Paul Carey, head of AIB's special finance unit. An announcement is expected by the end of the week, he said.

"It will give small Irish companies access to money they would not otherwise have," said Mr Christopher Sibson, the head of finance and planning at the European Investment fund. Mr Sibson was speaking after a Deloitte & Touche conference on small and medium enterprises (SMEs) in Europe.

AIB is Ireland's only shareholder bank in the Brussels based fund. It acts as an intermediary and introduces smaller companies in need of venture capital. The fund covers 50 per cent of any risk which AIB takes on. It also provides for a lower capital adequacy ratio, which means banks can distribute more of their funds than would otherwise be the case.

The fund also guarantees long term finance rather than simply providing loans, Mr Sibson said.

SMEs have become a priority within the EU, Mr David Lawrence of the European Commission told the conference. As a result, his budget at the DG 23 section, which looks after the interests of Europe's smaller companies, has increased by 60 per cent this year.

Although SMEs can employ up to 100 people, Mr Sibson said that Irish sole traders, with a house as their only capital, would be funded through the fund.

He told the delegates at the conference the fund was doing very well in its objective of introducing small and medium companies to enterprise loans. The major part of the fund business was in backing Trans European Networks (TENs), or infrastructure projects, which account for 80 per cent of its business.

He also stressed it was very difficult for small firms to know exactly what sources were open to them for funding. Environmentally friendly projects and film production are two areas the fund was particularly keen to work in, he said. As well as focusing on these sectors the fund was also keen to target certain countries, including Greece, the Netherlands, Belgium and Ireland, he said.

Mr Zygmunt Tyszkiewicz, secretary general of Unice, the European federation of business leaders, to which IBEC is affiliated, said the main problem facing small business across Europe was the "tide of regulations flowing in from all over".

Attitudes to regulation should also be examined. "In my country they have a saying: `there ought to be law about that'. But maybe we need a low level of self regulation."