Nationwide said it has applied for a 50 million pound grant as part of a 775 million pound package of funding that rival Royal Bank of Scotland is being compelled to disburse to boost competition in the market.
If its application is successful, Nationwide said it would launch a business current account to compete in a market dominated by Britain's five biggest banks with 85 percent of business accounts between them.
"Historically the cost of entry in this market was so high we couldn't look our members in the eye and say this is going to pay them back, but if we are successful in securing funding from the remedies package that problem goes away," Nationwide Chief Executive Joe Garner said.
Godfrey Cromwell, a member of Britain's upper House of Lords, was appointed this month to lead Banking Competition Remedies, the body that will hand out the grants to banks.
RBS has been compelled by the government and the European Commission to hand out the funds as part recompense for its 45.5 billion pound bailout during the financial crisis.
Nationwide said it would target small businesses with annual turnover below 20 to 25 million pounds a year. Its push into business banking comes at a time when the incumbent large banks are coming under heavy criticism from lawmakers for their treatment of small businesses.
Nationwide reported an annual profit of 977 million pounds, down from 1.05 billion pounds a year earlier.
It was Nationwide's second consecutive year of declining profits, which it blamed on costs from buying back its own debt as well as increased competition and low interest rates.
Unlike its rival listed banks such as Lloyds and RBS which have a goal of delivering ever higher profits to their shareholders, Nationwide operates as a society owned by its customers and said it will be comfortable keeping annual profits at between 0.9 to 1.3 billion pounds per year.
The lender said it has launched a review of its technology investment and will announce the results in the Autumn, as rivals crank up their spending to ward off the threat from startup digital banks and the big global technology firms.
(Reporting By Lawrence White, editing by Sinead Cruise)
By Lawrence White