Create a more
diverse finance market

for smaller businesses, with greater
choice of options and provider

Icon

Objective 2

Create a more
diverse finance market

for smaller businesses, with greater
choice of options and provider

Why it is important: When we support a non‑standard small business finance product or help an alternative provider, smaller businesses benefit from better choices and better terms that increased competition can deliver.

Our objective is to increase the choice of finance for smaller UK businesses – both in terms of supplier and finance type. Our aim is to ensure that 75% of our stock is delivered through providers outside the Big Four banks.

Importance of building partnerships

In 2015–16 we took on nine new partnerships across the business – three in Venture Capital and six through our commercial arm’s Investment Programme. One of our main ways of increasing diversity is to support new entrants and increase the capacity of existing lenders across the scope of the finance markets.

  • Across the bank and its subsidiaries, in 2015–16 we partnered with challenger banks, including Clydesdale and Yorkshire as part of our ENABLE Guarantee programme and participated in Shawbrook’s tier two debt issuance.
  • We also supported debt funds – a type of finance well-established in the USA but relatively new to the UK marketplace.
  • We supported asset finance providers through our programmes (ENABLE Funding and the Investment Programme) and are looking at introducing an asset finance variant for Enterprise Finance Guarantee.

Introducing and supporting new types of finance

We also supported some types of finance that are less well established as options in the UK finance markets in 2015–16, including merchant cash advances and private debt. We also increased our commitment to supporting asset finance provision.

Geographical diversity

Diversifying the geographical spread of finance and addressing this weakness is therefore important to support these businesses. In 2015–16, the British Business Bank announced two major initiatives to support this aim.

Firstly, at Autumn Statement 2015, an agreement was announced between the British Business Bank and Local Enterprise Partnerships in the North West, Yorkshire and the Humber, and Tees Valley to create a Northern Powerhouse Investment Fund of over £400m, subject to meeting European funding requirements. 

The Fund will produce greater levels of investment, increase the focus on the potential opportunities across the Northern Powerhouse Region and provide increased flexibility in the type of funding provided. Together these will contribute to better economic outcomes for the regions’ businesses, growth and jobs.

Secondly, a new £250m Midlands Engine Investment Fund – again, a collaboration between British Business Bank and the region’s Local Enterprise Partnerships, was announced at Budget 2016 – will further contribute to efforts to rebalance the UK economy across the regions.

Focused on the Midlands’ 460,000 smaller businesses, this initiative will bring together legacy funding from existing programmes, funding from the British Business Bank and new European funding. 

Following the results of the EU referendum we are seeking to confirm European commitments but are currently working on the basis that both of these proceed.

Going forward, we expect Help to Grow and some variations of ENABLE to be distributed in part through the Big Four banks, in order to rapidly reach nationwide availability. 

However, we anticipate that the majority of our interventions will remain with challengers and alternative providers, given that all other prospective and existing programmes work through smaller debt and equity finance providers.

Secondly, a new £250m Midlands Engine Investment Fund – again, a collaboration between British Business Bank and the region’s Local Enterprise Partnerships, was announced at Budget 2016 – will further contribute to efforts to rebalance the UK economy across the regions.

Focused on the Midlands’ 460,000 smaller businesses, this initiative will bring together legacy funding from existing programmes, new funding from the British Business Bank and new European funding. Following the results of the EU referendum we are confirming European commitments but are working on the basis that both of these proceed as planned.

British Business Bank Investments Ltd – championing diversity in finance provision

Our commercial subsidiary plays a key role in increasing diversity of lenders and types of finance. It makes loans or investments of between £5m and £200m in finance providers to smaller businesses.

In 2015–16, it made commitments totalling £185m through its Investment Programme.

These included investments in a challenger bank (Shawbrook), a merchant cash advance provider (Liberis), private debt funds (Cordet, Muzinich, Beechbrook), and an asset finance provider (Haydock).

Its VC Catalyst Fund committed £36m to four funds during 2015–16 – Notion Capital III, Nauta Capital IV, Atlantic Bridge and Panoramic II.

Previous: Increase the supply of finance
Next: Promote better information in the market