British Business Bank
“Growth Loans” Pilot
Delivering “Help to Grow”
26th March 2015
@britishbbank
www.british-business-bank.co.uk
Content
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•
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Welcome and Introduction
The Evidence Base: Research Findings
The “Growth Loans” Pilot
Application Process and Next Steps
@britishbbank
www.british-business-bank.co.uk
2
Today’s Speakers
Patrick
Magee
Dan
van der Schans
Judith
Ozcan
Mark
Hambly
Welcome and
Introduction
The Evidence Base
(Research Findings)
The “Growth Loans”
Pilot
Application Process
and Next Steps
Chief Operating Officer
Economist
Market Insight and
Analysis
Managing Director
Lending Solutions
Director
Lending Solutions
@britishbbank
www.british-business-bank.co.uk
3
Our Approach
“Start-up”
@britishbbank
www.british-business-bank.co.uk
“Scale-up”
4
“Stay strong”
Programme Offer
Start-up
Scale up
Stay strong
Mentoring and funds
to “be your own boss”
Funds for high growth
potential
More funding options
and choice of provider
Investment Programme
Up to £25k for people
wanting to start their first
own business
6% interest
Delivered through Start Up
Loans Company and delivery
partners
Referrals
Co-invests alongside angel syndicates
on commercial terms
£250m of awards to new platforms,
debt funds and asset based lenders
Venture Capital
EC approved for bigger investments
and funds
Enterprise Finance Guarantee
Guarantees to extend banks’ risk
appetite where security is insufficient
Ability to help close good quality
funds
Enable
Growth Loans
Capital focused guarantees to grow
small bank lending
Request for proposals launched 18
March 2015
Capital markets funding for smaller
asset based lenders
Smaller businesses rejected for loans from major banks given opportunity to be
referred to other finance providers. Request for proposals launched 18 March 2015
@britishbbank
www.british-business-bank.co.uk
5
Impact
Our programmes are already delivering results
First guarantee issues under the Enable
Programme
25th March 2015
@britishbbank
www.british-business-bank.co.uk
Source: British Business Bank, December 2014
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Growth Loans: An Exciting Opportunity
A new product utilising the flexibilities of
the Bank
We start from a researched and evidencebased approach to understanding the
market
As we work through the market we have
issued a flexible RfP which allows us to
structure a range of potential solutions, by
either providing capital or guarantees
We are commercially-minded and focused
on best value but we recognise the
challenges in addressing market gaps
We look forward to engaging with
interested parties
@britishbbank
www.british-business-bank.co.uk
7
Content
•
•
•
•
Welcome and Introduction
The Evidence Base: Research Findings
The “Growth Loans” Pilot
Application Process and Next Steps
@britishbbank
www.british-business-bank.co.uk
8
Demand for Growth Finance is Increasing
Business confidence is rising
and investment is forecast to
grow
Demand for finance is
moving away from working
capital towards investment
and growth
46% of businesses want to
grow
69% of businesses with 50249 employees want to
grow
Real business investment following the last three recessions
Source: Office Budget Responsibility (2014) “Economic and Fiscal Outlook,” December 2014;
and British Business Bank, “Small Business Finance Markets, 2014
@britishbbank
9
www.british-business-bank.co.uk
Research Methodology
We undertook new primary research in 2014:
• 34 qualitative interviews with banks,
private debt funds, smaller businesses and
business advisors
• Consultations with overseas Development
Banks to review growth loan scheme
features
• Quantitative assessment of market supply
and demand to assess whether a funding
gap exists.
We have now updated and published our
research (spring 2015)
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What is a Growth Loan?
Bespoke debt-based finance
that goes beyond senior debt
in terms of risk appetite and
higher pricing
Supports growth in businesses
that have limited scope to raise
additional senior debt due to
risk or lack of collateral
Mezzanine finance is a type
of growth loan, which shares
some of the characteristics of
equity finance
Source: British Business Bank (2015) “Analysis of the UK Smaller Business Growth Loans Market”
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www.british-business-bank.co.uk
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Less than 0.5% of all SMEs have used mezzanine finance
in the last 3 years
15% of smaller businesses are aware of mezzanine
finance with 5% aware of a specific supplier
Analysis of UK firms suggests that there are 16,000 growth
SMEs which:
•
•
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Are at least 3 years old
Have a turnover of £1m or greater
Have experienced annual turnover growth averaging 520% over three years
Confidence
Limited use and awareness of growth finance amongst
SMEs:
Understanding
Awareness
What is the Potential Demand?
Potential Demand:
Up to £1bn
Of these around 500 SMEs per year may seek growth loans
Source: British Business Bank (2014) “SME Journey towards raising finance” (BMG Research) and
British Business Bank (2015) “Analysis of the UK Smaller Business Growth Loans Market”
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www.british-business-bank.co.uk
What is the Current Supply?
Significant new entry in private debt midmarket
Smaller number of private sector funds
providing SME growth loans - minimum
deal size is c.£5m
A number of publicly backed funds provide
funding up to £5m
Other sources of funding include VCTs and
private lenders
Some specialist provision from banks,
mostly focused on larger deals
Total 2014 supply of growth loans in the
region of:
•
£60m for loans < £2m
•
£260m for loans < £5m
Source: British Business Bank (2015) “Analysis of the UK Smaller Business Growth Loans Market”
@britishbbank
13
www.british-business-bank.co.uk
A funding gap exists for smaller businesses seeking
finance in the range of £0.5-£5m but particularly for deal
sizes up to £2m
A number of market failures exist which restrict the
supply of growth loans:
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High cost of due diligence for smaller deals
Asset class has lack of track record
Coordination failures also exist
The funding gap is liable to increase in future as
demand for finance increases
Track Record
Some growth orientated businesses are unable to raise
finance
Coordination
Cost
What is the Market Gap?
Estimated Annual
Funding Gap
£200-900m
Source: British Business Bank (2015) “Analysis of the UK Smaller Business Growth Loans Market”
@britishbbank
14
www.british-business-bank.co.uk
Contents
•
•
•
•
Welcome and Introduction
The Evidence Base: Research Findings
The “Growth Loans” Pilot
Application Process and Next Steps
@britishbbank
www.british-business-bank.co.uk
15
Pilot Objectives
To increase the supply of
growth loans to eligible
SMEs with growth
potential
To test partnering and
financing structures to
inform potential roll-out
of a future wider
programme
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16
To demonstrate that this
market segment offers a
viable investment
opportunity and is able to
attract private sector
capital
Target Outcomes
More Lending
To have facilitated provision of a minimum of £160m of
additional finance over a 24 month lending period
Better
Interventions
To have tested different models of participation through
a number of different partners and to have an
understanding of the pros and cons of each
Deeper Knowledge
@britishbbank
www.british-business-bank.co.uk
To have developed an understanding of provider,
borrower, investor and wider market demand
17
We Work Through The Market
Fully
Capitalised
Providers of
Growth Finance
Partially
Capitalised
Support by
providing
Guarantees
Support by the
investment of
Capital
Shared first loss
with fee payable
On either Pari Passu
or Unmatched
terms
Enhancing Risk Appetite / Growing Capacity / Increasing the Flow of Capital
ADDITIONAL Lending to eligible SMEs
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Provision of Guarantees and
Capital will be complemented
by broader development of
the growth finance market
For example:
• Standardising transactional
documentation
• Building awareness for
growing SMEs on financing
options
Guarantees: Expected Parameters
Other innovative structures may also be considered, subject to compatibility with BBFL’s remit and the relevant
State Aid regulations
@britishbbank
www.british-business-bank.co.uk
19
Capital Investment: Expected Parameters
Examples
Pari Passu
Structure
Unmatched
Structure
Maximum BBB
Participation
50% of Fund
£20m
40% of Fund
£20m
Return to BBB
Identical to that to Private
Investors.
Priority return (as interest
on balance of investment
in fund) offset by reduced
share of up-side benefit.
Repayment of
Capital
Identical to that to Private
Investors.
Possible prioritised
repayment.
Other innovative structures may also be considered, subject to compatibility with BBFL’s remit and the relevant
State Aid regulations
@britishbbank
www.british-business-bank.co.uk
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Assessment: Criteria
Proposals will be assessed against eight criteria:
LENDING TO /
INVESTMENT IN ELIGIBLE
SMEs
LENDING/INVESTMENT
STRATEGY
LENDING/INVESTMENT
SCALE & TENOR
ORIGINATION SYSTEMS
& PROCESSES
GUARANTEE STRUCTURE
& INVESTMENT RETURNS
MANAGEMENT TEAM
& TRACK RECORD
COMPATIBILITY WITH
BBFL REMIT
LEGAL STRUCTURE,
REGULATION
& TAX DOMICILE
@britishbbank
www.british-business-bank.co.uk
21
Assessment: More Detail (1)
LENDING TO /
INVESTMENT IN ELIGIBLE
SMEs
LENDING/INVESTMENT
STRATEGY
UK SMEs with t/o <£39m,
preferably <£25m
Track record of growth (520% pa over 3 years)
Viable growth plans
Strong management
teams
Ability to provide growth
loans £0.5m-£2m
Lending products with
flexible repayment
structures, including
deferred interest
Primarily a debt-based
return, but with
mechanisms for sharing
in potential upside
Unable to raise sufficient
senior debt
SME eligibility subject to
State Aid requirements
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22
LENDING TO /
INVESTMENT IN
ELIGIBLE SMEs
LENDING /
INVESTMENT
STRATEGY
Assessment: More Detail (2)
LENDING/INVESTMENT
SCALE & TENOR
ORIGINATION SYSTEMS
& PROCESSES
GUARANTEES: Lend min.
£10m during lending
period
CAPITAL: Investment of
£10m-£20m from BBB
alongside at least equal
private investment
Ready to lend late
2015/early 2016
Lending/investment
period of c.24 months
Maximum loan term of
seven years
Track record of
originating and
completing growth loan
deals
Has robust and
comprehensive credit
assessment, lending and
monitoring
arrangements
Able to report in a timely
manner
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www.british-business-bank.co.uk
23
Assessment: More Detail (3)
GUARANTEE STRUCTURE
& INVESTMENT RETURNS
MANAGEMENT TEAM
& TRACK RECORD
Can clearly set out return
expectations and explain
impact of BBB
participation
Clear pricing to SMEs
GUARANTEES: Intended
Rate, Cap and Fee
CVs and references
Evidence of delivering as
a cohesive team
Has mechanisms for
addressing any shortfalls
Reputation and integrity
Evidence of skills
necessary for delivering
growth finance
CAPITAL: Pari Passu or
Unmatched, expectations
of investors, returns
structure
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www.british-business-bank.co.uk
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Assessment: More Detail (4)
LEGAL STRUCTURE,
REGULATION
& TAX DOMICILE
COMPATIBILITY WITH
BBFL REMIT
British Business Finance
Ltd facilitates access to
finance for young and
high growth SMEs on
either a commercial or
aided basis
Case-by-case
consideration of
compliance with State Aid:
GBER / de minimis (cf. RfP
Section 4)
Transparent and
appropriate structures
Ethical approach to
lending
Appropriate
authorisations and
permissions held
Use of Guarantees must
be appropriately
structured for regulatory
purposes
EU schemes, such as Innovfin, are compatible with our State Aid remit and offer an interesting
opportunity. We are exploring the possibility of becoming a counterparty, simplifying access for UK
institutions
@britishbbank
www.british-business-bank.co.uk
25
Contents
•
•
•
•
Welcome and Introduction
The Evidence Base: Research Findings
The “Growth Loans” Pilot
Application Process and Next Steps
@britishbbank
www.british-business-bank.co.uk
26
Application Process: Transparent, Robust
I
VI
Expression
of Interest
II
Award
VII
V
Initial
Discussion
III
Assessment
and Due
Diligence
IV
Completion
@britishbbank
www.british-business-bank.co.uk
VIII
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Formal
Proposal
(by invitation)
Commitment
and Drawdown
Management
Presentation
Lending
Timeline
Lending will flow through 2016
Borrowing SMEs repay over 5-7
years following drawdown
No final
decisions will
be made
while the RFP
is open
2nd
Half 2015:
selection and sign
up of partners
RFP Closes:
30th June
2015
RFP Launched:
18th March
2015
@britishbbank
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28
Guarantee fees apply throughout
life of loan
What Do You Need to Do Next?
Read
Review Request for Proposals (RfP) which is available at:
www.british-business-bank.co.uk
Register Your Interest by 30th June, 2015
BBB will then invite you to submit a short paper addressing
each of the assessment criteria, in order to provide the
basis for a discussion.
Further Questions? Ask Us
Register Your Interest
[email protected]
If your question is of wider relevance we will
publish it, along with our answer, in an
anonymised form for the benefit of all
interested parties at: www.british-businessbank.co.uk
Ask Questions:
[email protected]
@britishbbank
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29
Thank You for Coming
We look forward to receiving your Expressions
of Interest
Any
Questions?
@britishbbank
www.british-business-bank.co.uk
30
British Business Bank plc is a public limited company registered in England and
Wales registration number 08616013, registered office at Foundry House, 3
Millsands, Sheffield, S3 8NH. As the holding company of the group operating under
the trading name of British Business Bank, it is a development bank wholly owned by
HM Government and is not authorised or regulated by the Prudential Regulation
Authority (PRA) or the Financial Conduct Authority (FCA). British Business Bank
operates under its own trading name through a number of subsidiaries, one of which
is authorised and regulated by the FCA.
British Business Finance Ltd (registration number 09091928), British Business Bank
Investments Ltd (registration number 09091930) and British Business Financial
Services Ltd (registration number 09174621) are wholly owned subsidiaries of British
Business Bank plc. These companies are all registered in England and Wales, with
their registered office at Foundry House, 3 Millsands, Sheffield, S3 8NH. They are not
authorised or regulated by the PRA or FCA.
Capital for Enterprise Fund Managers Limited is a wholly owned subsidiary of British
Business Bank plc, registered in England and Wales, registration number 06826072,
registered office at Foundry House, 3 Millsands, Sheffield, S3 8NH. It is authorised
and regulated by the FCA (FRN: 496977).
British Business Bank plc and its subsidiary entities are not banking institutions
and do not operate as such.
A complete legal structure chart for British Business Bank plc and its
subsidiaries can be found at www.british-business-bank.co.uk.
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BBB 011214 22