Creating a virtuous circle
Commentary by Keith Morgan, CEO, British Business Bank
Small businesses and entrepreneurs up and down the UK will know how difficult it can be to secure finance. They face challenges accessing finance through markets that have a multitude of structural issues including a lack of early stage equity funding and an unwillingness to provide debt funding to young, innovative companies lacking a track record and collateral.
As the UK’s government-owned business development bank, our mission is to make these finance markets work better for small businesses in the UK at all stages of their development. We do that by working with more than 90 private sector partners to provide a range of funding programmes to tackle these challenges. We support our partners through funding and guarantees, enabling them to provide finance to businesses at every stage of their journey including asset finance, debt funds and peer-to-peer or technology-enabled lending – thereby helping to diversify supply and stimulate competition in the market.
One example is our commitment of over £100m to back peer-to-peer lenders such as Funding Circle to ensure small businesses can access funding through innovative direct-lending platforms. Our work with Funding Circle alone has helped create an estimated 30,000 new jobs and opened up small-business lending to a wide range of investors and, importantly, increased competition in the market.
In the important scale-up space, over £1.3bn has been committed by both government and the private sector into our venture capital funds that help high-growth smaller businesses access the equity capital they need to scale up. The importance of this venture activity was underlined by the further £400m the British Business Bank received at the recent Autumn Statement to use for later stage venture capital, where we’d identified a gap in the market. We have also been active in our earlier-stage Enterprise Capital Funds, notably with our groundbreaking ‘Accelerated Digital Ventures’ fund worth £150m, backed by the Bank and two major institutional investors, Woodford and L&G.
On a regional level, we are keenly aware of the well-documented disparities in funding across the UK’s regions, especially equity finance. Our recently launched Northern Powerhouse Investment Fund (NPIF), to be followed by a similar Midlands Engine fund, will provide over £400m in government funding to northern start-up and scale-up businesses. NPIF will produce greater levels of investment, increase the focus on the potential opportunities across the region and provide increased flexibility in the type of funding provided. Working with local partners, we believe it will contribute to better economic outcomes for the regions’ businesses, growth and jobs.
As well as the supply side, we see the demand side as key to making markets work. Here the evidence shows that there remains a low awareness among smaller businesses of the funding choices available beyond the high-street banks. Finding the right option is not always easy. To navigate through these options, our Business Finance Guide, jointly published with the ICAEW’s Corporate Finance Faculty and in partnership with 21 other business organisations, outlines the finance options available to businesses at all stages. Businesses and their advisors can take the interactive journey or download a copy at www.thebusinessfinanceguide.co.uk/bbb.