A GROUND-BREAKING business funding scheme is poised to boost Scotland’s cutting edge technology sector in a bid to help build a “high skill, high wage” economy.

The investment initiative was a centrepiece of the First Minister’s programme for government and sources close to her say it is underpinned by the drive to develop a prosperous nation driven forward by innovative small and medium-sized companies.

Under the plan, £500m in public cash would be used by ministers over the next three years to guarantee private sector loans in a move also designed to counter uncertainty caused by Brexit.

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The scheme would see the government acting as “guarantor” of bank loans to firms assessed as having a high potential for growth, allowing them to attract investment levels difficult to access in a worrying financial climate.

Scotland has a growing sector involved in pioneering technologies, illustrated with the opening last year of a £89m research centre at Strathclyde University which sees companies work alongside teams of academics to address some of the world’s most pressing engineering and technological challenges.

The funding scheme was described as a “exceptional response to an exceptional economic challenge” by Nicola Sturgeon when she unveiled it in Holyrood on Tuesday.

Yesterday a source close to the First Minister elaborated on the initiative, describing it as in line with the government’s ambitions to allow firms with a high skills base to flourish.

“When Nicola Sturgeon announced her candidacy as First Minister after the 2014 referendum she made a speech emphasising the importance of creating a Scottish economy with more and better jobs. This announcement on the growth scheme fits very much in with that vein,” said the insider.

“We believe financial technology (Fintech) and bio technology are sectors which will particularly benefit. Firms in these areas tend to be investment heavy at their early stages as they need a lot of expensive equipment and going to the next level often requires a considerable amount of money.

“We believe the scheme will have a strong multiplier effect as it frees up investment that we can guarantee but also investment beyond that. With the knowledge that the Scottish government is standing behind these new companies it gives others the confidence to invest in them.

“One of the real joys of this scheme is that for every few million of pounds we spend we may deliver hundreds of millions of pounds of investment.”

The Technology and Innovative Centre at Strathclyde University sees scientists work on a wide range of areas, including using high intensity radiation to analyse cloud formations and weather patterns in the atmosphere; the development of new systems to generate energy from green sources and projects to allow energy to be transported and transmitted more efficiently.

During a visit to the centre the First Minister reflected on the need for Scotland to draw on its legacy as a nation of innovators.

“Scotland is a land of inventors, innovators, new ideas and creativity. We need a thriving and dynamic ecosystem in order to improve productivity, competitiveness and growth,” she said.

Last week it emerged that financial technology has the potential to create around 15,000 jobs in Scotland over 10 years, but academics claimed such a development is dependent on the sector adopt new technologies.

Daniel Broby, director of Strathclyde University’s Centre for Financial Regulation and Innovation, said at the time: “In Scottish bank and fund management operations, Fintech is already used. This is, however, largely developed in-house and as such is not cutting edge.

“The gradual trend has been for traditional banks to move to off-the-shelf solutions and to leave the in-house developed legacy systems.

“We argue that this should be accelerated. There’s potentially a huge opportunity for Scotland but we need to seize it.”

Fintech start-ups around the world saw £10bn investment last year.

The Scottish Growth Scheme will be open to small and medium-sized firms otherwise struggling to win finance that would allow them to grow.

The Government would act as a guarantor for up to £5m for each company, taking on much of the financial risk of the loan that would usually rest with the lender.

However, the taxpayer would be liable to payback loans should companies qualifying end up defaulting on payments or go bust.

No extra cash is being requested from the UK Government for the initiative. However, it does require approval from the Treasury because of protocols over the budget matters.

At Holyrood’s finance committee yesterday Murdo Fraser, the Scottish Conservative MSP, criticised Finance Secretary Derek Mackay for not seeking Treasury approval for the plan before unveiling it.

But McKay hit back saying the Scottish Government is accountable to the Scottish Parliament, not the UK Government, and therefore it informed Holyrood first.

He stressed the innovative nature of the scheme and quipped that the UK Government may well end up “copying it”.

It is understood he wrote to the Treasury about the scheme after it was announced on Tuesday.