Prime Minister announces British Business Bank ‘HELP TO GROW’ scheme
British Business Bank to support growth of UK companies
The Prime Minister has announced that the British Business Bank will pilot a new programme, Help to Grow, to allow fast-growing companies realise their potential. The British Business Bank will start a £100m pilot scheme to develop the concept. It will issue a request for proposals addressed to potential private sector delivery partners in March at Budget.
Smaller businesses are vital to the UK economy, and are major drivers of employment and innovation for the country. Ensuring that they have adequate access to the right type of finance at the right time is essential to ensure that they achieve their growth potential. The British Business Bank’s Small Business Finance Markets report, published in December 2014, shows that increased numbers of smaller businesses are expected to seek finance for growth in the coming years, as nearly half (46%) of small businesses plan to grow their turnover in the next 12 months, with 17% of these expecting to fully or part fund this expansion with commercial finance.
Forthcoming research by the British Business Bank shows that the growth loan market for small businesses is underdeveloped in the UK, with a number of structural market failures affecting both the supply and the demand side restricting this market from becoming established. Market data shows that the private sector providers (active in this growth finance space) currently target larger corporates with deal sizes in excess of £10-20m. There has been limited entry by private sector debt funds specifically targeting smaller businesses with deal sizes of less than £10m, especially for deals sizes £2-5m and below.
British Business Bank research finds that there are approximately 16,000 firms with high growth and annual turnover in the range £1m to £25m per year which might be suitable for growth finance, and expects that around 500 of these firms annually could benefit from additional finance availability. These firms will typically require finance in the range £0.5m to £2m, meaning up to £1bn annual demand overall, subject to testing of the market through this pilot.
Notes to Editors:
020 7199 6196/ Nithiya Gnanathas
- Help to Grow: In broad terms, the growth finance under the new pilot Help to Grow programme can include debt finance with equity elements, or more simply junior debt. It can help sustain growth where businesses lack the security to obtain more senior debt, are not at a stage where the company is suitable to equity investors, or simply where a business does not wish to give up ownership of its equity. Debt finance with equity elements is also referred to as ‘mezzanine finance’.
- Whilst senior debt from a bank or a peer to peer lending platform meets the funding needs of most businesses, growth loans are a funding solution that is suitable for a small proportion of important businesses with the following criteria:
- Established businesses with a strong balance sheet that are generating cash revenues.
- Businesses looking to grow significantly.
- Businesses that have exhausted their tangible collateral or have no collateral to offer.
- Whilst the final structure and timing of activity will be subject to the proposals submitted by potential commercial partners, it is likely that a range of different approaches will be trialled, including Business Bank guarantees for growth capital lending and co-investment alongside debt funds.
- The Business Bank will run a pilot of Help to Grow which will aim to generate at least £100m of new lending, with a request for proposals issued in March at Budget, focused on two alternative approaches: 1) Funds that would co-invest private money alongside public money, drawing on the to the BBB’s experience of running its highly successful Enterprise Capital Funds programme; 2) Funds that would invest private money supported by a structured government guarantee to encourage increased lending.
Help to Grow Announcement: Q and A
When will businesses see the benefit of this new programme?
The Business Bank is keen to launch this activity as soon as possible so smaller companies can benefit, and expects the first loans to be made from the autumn of 2015 after terms are agreed with pilot participants. It’s not possible to say exactly when lending will begin as it will depend on the propositions that are put forward to the British Business Bank, and the discussions that follow.
How much lending will this mean?
The Business Bank expects the pilot programme to generate at least £100m of new lending. The exact scale will be determined by the proposals we receive and subsequent discussions. It is anticipated that the Business Bank will initially trial a small number of approaches to validate the concepts proposed and test demand for the products. Smaller businesses currently have low awareness of growth loans, and so the pilot will help raise the profile of this type of finance.
Will the Bank be lending directly to smaller companies?
No. Based on the tried and tested model the Business Bank has used on its other products, the Business Bank will work through market lenders.
Who will the Business Bank work with on this product?
Any finance provider that wishes to apply is open to do so – the Request for Proposals that the Business Bank intends to publish will set out the requirements and criteria that proposals will be considered against.
What companies will be able to use this scheme?
This type of finance will typically be most suitable for established smaller businesses that are growing but have exhausted their existing capacity to access senior (secured) debt. The exact details of the products offered to SMEs will depend on the proposals that are received and discussions with potential providers.
Do other countries provide this type of support?
A number of other countries provide various types of support that have the same aim as the growth loans programme we are developing. We have looked at these models as part of our research, and continue to consider how we can learn from others as we develop and refine our activities.
- Debt funds are more prevalent in the US, due to the establishment of the Small Business Investment Company (SBIC) programme in 1958 by the Small Business Administration (SBA) to address funding gaps in the US economy.
BPI-France, the French Business Bank introduced the Contrat de Développement Participatif in 2009 in response to the increasing difficulties of French businesses in obtaining finance due to the economic downturn