Funding the future of the UK PLC

Economy & Politics | Financial Services | Interview

The British Business Bank is a government-owned financial institution which drives economic growth by making finance markets work better for smaller businesses in the UK, allowing those businesses to prosper and grow.

Chief executive officer Keith Morgan spoke with Business Leader Magazine about the help it gives to SMEs in securing much-needed finance and the varying differences surrounding investment options available.

The bank recently published is fourth small business report. What were the key findings?

Looking at 2017, we saw some encouraging trends and one of them is in terms of diversity and choice. We saw peer-to-peer lending grow at over 50%. It’s obviously coming from a smaller base as it’s a reasonably new form of lending, but 50% growth is a very strong outcome.

It shows that people are searching for more choice, which is another good thing. What we also saw was continued robust growth in asset finance, which is important because if you want to grow your business quite often you want to buy kit or machines to underlie that and asset finance is a way of doing that.

The thing I was particularly interested in was surrounding what’s happening with equity investment in small firms, because for those firms that are growing most quickly with big aspirations; equity is often a very important source of funding because you’re asking for a big reward – but there is more risk involved behind that significant growth. That’s what an equity investor would be looking for as well.

HOW DOES BBB CONTINUE TO AID THIS GROWTH?

Peer-to-peer lending, asset finance and equity are all features of the broad range of activities we pursue as the UK’s national development bank. We’ve always been there to help support additional choice and we, for example, have provided funding to peer-to-peer lenders In order to increase the scale of their funding base.

There are some important regional issues too that we are working to solve. What you do see in this country is the vast majority of equity investment into small companies actually occurs in London and the South East, it’s a little unbalanced. Over the last couple of years, we’ve put in a lot of effort into scale up funding out in the regions.

HOW IMPORTANT IS IT TO GROW THE OTHER REGIONS?

Tremendously important. Everyone, including ourselves, would like to see a balanced regional economy where there’s opportunity available for everybody.

If you look at some of the underlying figures, there are as many high growth companies in the North of England as there are in London.

Many people might not know that but it’s really impressive, there is innovation happening across the country but if London gets a lot more equity finance than the North, which is the case, then the only conclusion must be that northern companies have less access to the rocket fuel which helps them grow, which means they won’t grow as quickly.

What we’re trying to do is help to rebalance this so that there is greater access to equity in the regions outside of London and the South East.

HOW IMPORTANT ARE INITIATIVES LIKE NORTHERN POWERHOUSE INVESTMENT FUND FOR THE BRITISH BUSINESS BANK?

It’s important that we engage with all the different stakeholders that have a view and a role. In bringing those things to life we wanted to work closely with the component areas and regions of the North and the Midlands.

They’re made up of what is called local enterprise partnerships and that is where local public and private sectors come together to form a view about how those areas should develop.

When it comes to those funds we’ve brought together all the local enterprise partnerships in that region and we’ve sought their input and advice about how those funds should be committed. We then have people on the ground who are managing and coordinating flows of funds.

A few months ago, The British Business Bank launched a £2.5bn programme with £400m of seed capital as part of an effort to match the US in creating the next generation of “unicorn” firms.

How is this going and what was the thinking surrounding this idea?

It’s important to grow companies. From small companies will be the big firms of tomorrow and if you look through history you will see what’s happened. You don’t find companies in the FTSE 100 which were necessarily formed 100 years ago, they were formed for progress on that front.

We’ve got some fantastic fundamentals, if you look at the UK, we’ve got a very well admired University system which produces a lot of innovation which in turn can be commercialised.

The question is how we take the fundamentals and make sure companies can grow and become the successful companies of tomorrow. We have, for many years, been a country which has been successful at starting up – we have a very successful track record. Culturally we’re interested in working in small, innovative, entrepreneurial environments.

But what we have to make sure is the ones that are going to grow have got the ability to grow and meet potential. This is what this is about, it’s £2.5bn to make sure companies reach their potential.

You’ve mentioned before that funding from Europe is crucial for these initiatives to work. With Brexit in mind what precautions or plans are being made to ensure this still happens?

At the time just after the referendum this was a concern, but, very helpfully, Her Majesty’s Treasury at the time said that if it ever became a case that the European funds that underpinned the current Northern Powerhouse investment Fund or the Midlands Engine Investment fund would for some reason all dry up, then the treasury said they would backfill that particular piece of funding.

Those two initiatives are very secure, the funding arrangements are in place and if there was any discontinuity, we do have that guarantee to commitment we heard.

THE RISE OF THE BBB SINCE ITS INCEPTION HAS BEEN PHENOMENAL. WHAT’S THE JOURNEY BEEN LIKE?

We’ve been operational since late 2014, we’ve been through a start-up phase, now we are well into the scale up phase. In many ways we’re following a path that many of our ultimate investee companies are following and, in that sense, we can identify with some of the issues they themselves are dealing with.

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