British Business Bank Peter Wilson CEO British Business Bank Investments ABFA Annual Conference 3 June 2015
Contents Overview of the British Business Bank Rationale Business Model Aims Programmes Impact Investment Programme & IF Criteria and process Questions 2
Ownership and structure HM Treasury Secretary of State BIS Financial Framework British Business Finance Limited Mandated Arm British Business Financial Services Limited Service Arm Operates as a fully commercial investor; targets all SMEs and midcaps Operates on a State aid basis; targets SMEs where there is a demonstrable market failure Performs services on behalf of BIS; can target all smaller businesses
British Business Bank timeline March 2013 July 2013 Secretary of State s Advisory Group completes report on Business Bank Jan-July 2014 Publication of Strategic Plan Publication of Business Finance Guide Launch Enable Guarantee pilot Full Board appointments October 2013 First Investment Programme investment Strategy update Appointment of Chair on the creation of April-June 2013 the Business Bank Launch of Investment Programme as first Business Bank programme Oct-Dec 2014 State aid approval received from European Commission British Business Bank fully operationally as PLC Jan Mar 2015 Help to Grow announced by PM Request for proposals for Help to Grow, credit reference agencies and referrals platforms launched. September 2012 Official creation of Business Bank 4
What is the underlying problem? Business investment by UK SMEs is comparatively low Share of total business investment by company size (2011) Absolute levels of SME business investment (2011) France 114.87bn Germany 83.33bn UK SMEs share of investment is significantly smaller than in other EU countries Spain 63.49bn Italy 63.03bn UK 55.61bn Solid colours indicate percentage of total business investment for companies with <250 employees BIS Analysis of Eurostat, March 2013 and also in absolute terms 5
Concentrated market, negative net lending SME Bank Lending Concentrated Market Rising Investment Source: Finance & Leasing Association 6
Our model Expertise Designing solutions to make finance markets for small businesses work better Money 3bn of public funding commitments Start-up funding providers Business Angels Asset Finance providers Banks Venture Capital providers Private Sector Money Private Sector Money Invoice Finance / Factoring Debt funds Trade Credit providers Supply-chain Finance providers Peer-to-peer Lenders Source: British Business Bank, December 2014 7
Our delivery partners Source: British Business Bank, December 2014 8
Our aims More Finance Up to 10bn Greater Choice of product and provider Better Info About finance options Return for Taxpayer Start-up Scale up Stay strong Resulting in increased business investment, growth and jobs 9
The businesses we help START-UP: Finch Installations Innovative technology to improve the diagnostics of clinical tests Total investment by Enterprise Capital Funds of 4.6m enabled launch of the product and securing of two large contracts. Successful sale of the company generated c. 4x return to investors. STAY STRONG: Viva Brazil 9,000 Start-Up Loan to start shop fitting business. Loan granted through Delivery Partner SWIG Assigned a mentor to provide advice Now employs 20 people. SCALE-UP: Sirigen Brazilian-style restaurant which first opened in Liverpool in 2010 then Glasgow a year later. 375k EFG from Santander enabled expansion to Cardiff 30 new jobs created Since expanded to Aberdeen Source: British Business Bank, December 2014 10
Programme offer Start-up Scale up Stay strong Mentoring and funds to be your own boss Up to 25k for people wanting to start their first own business 6% interest Delivered through Start Up Loans Company and delivery partners Funds for high growth potential Co-invests alongside angel syndicates on commercial terms Venture Capital EC approval for bigger investments and funds Ability to help close good quality funds Growth Loans Request for proposals for pilot to be announced at Budget Source: British Business Bank, March 2015 11 More funding options and choice of provider Investment Programme 250m of awards to new platforms, debt funds and asset based lenders Enable Capital focused guarantees to grow small bank lending Capital markets funding for smaller asset based lenders Enterprise Finance Guarantee Guarantees to extend banks risk appetite where security is insufficient Referrals Smaller businesses rejected for loans from major banks given opportunity to be referred to other finance providers
Venture Capital programmes Range of programmes and products supporting a vibrant and diverse venture capital market to support early stage and high-growth potential firms in the UK Enterprise Capital Fund (ECF) - Encourages early-stage venture capital investment - Make investments into funds, alongside the private sector, to increase the availability of growth capital for small businesses, which are underserved by equity markets 17 ECFs with an overall investment capacity of over 550m ( incl. private sector) Venture Capital Catalyst Fund - Encourages later-stage venture capital investment - Co-invests on the same terms as private investors into funds to help them reach a satisfactory first close Angel CoFund - Makes equity investments (between 100k and 1m) alongside syndicates of Business Angels - Portfolio of 108m of investments in small businesses Source: British Business Bank, December 2014 12
Lending programmes Range of programmes and products that support the flow of debt-based finance into smaller businesses Start-up Loans - Provides loans and mentoring support to enable entrepreneurs to start a business - Delivered by the Start Up Loans Company - an independent business - funded by the British Business Bank. - The 25 000 th loan was awarded in January 2015, announced by the PM Enterprise Finance Guarantee (EFG) - Providing a partial guarantee to lenders to encourage financial institutions to lend to viable smaller businesses lacking collateral - 40 lending institutions participate in EFG ranging from major banks to Community Development Financial Institutions (CDFIs) - Over 850m of smaller businesses loans currently being supported by the programme* Provide Guarantee Lenders Pay Premium Lending Repayment (Capital and Interest Fees Smaller Businesses Premium Source: British Business Bank, December 2014 13
Encouraging diversity Programmes designed to provide greater choice of finance provider and type of finance for smaller businesses Investment Programme - Addresses long-standing gaps in finance markets for smaller business and promotes greater choice in the supply of lending - 203m commitments to a range of finance providers including peer-to-peer platforms, debt funds and lease finance providers (as at February 2015) ENABLE Guarantees - Risk transfer mechanism for SME loan portfolios to make SME lending more capital efficient - Aims to address capital constraints associated with SME lending - Pilot launched March 2014 first transaction expected in Spring 2015 ENABLE Funding - An efficient funding tool for the asset finance industry - ENABLE works by purchasing newly-originated receivables from smaller asset finance providers and warehousing them - It will then seek to refinance a portion of its funding through capital markets Source: British Business Bank, December 2014 14
Impact British Business Bank programmes are already delivering results 1.84bn to smaller businesses 43,000 Number of smaller businesses currently benefitting from British Business Bank support 1.24bn to mid-cap businesses Source: British Business Bank, December 2014 15
Building awareness of funding options The business finance guide 75,000+ hard copies through partners and direct 600,000+ email circulation (HMRC and direct marketing and Partners) One million+ online & twitter page views David Prosser, January 2015 Evening Standard: there are some excellent sources of advice on alternative finance. Best of all is the comprehensive guide to the sector published jointly by the British Business Bank and the Corporate Finance Faculty at the Institute of Chartered Accountants in England and Wales (ICAEW). See www.british-businessbank.co.uk/bfg for details." Source: British Business Bank & ICAEW, March 2015 16
Investment Programme & Invoice Finance Investment Programme: Objectives Invoice Finance support to date Criteria Process Illustrative examples 17
Investment Programme objectives Diversification: Support the development of diverse debt finance markets available to SMEs Leverage: Mobilise additional funding from private sector sources in order to support lending to SMEs Effective Deployment: Channel finance to SMEs in an effective, appropriate and responsible manner Additionality: Expand the aggregate amount and / or types of debt funding available to SMEs 273 million committed to date to 11 lenders 18
Investment Programme Invoice Discounting BBBIL have provided support for three ID companies to date: partnering Caveat - the availability of short term bank finance can make the case for additionally weak Needs to be a solid rationale for BBBIL to participate 19
Investment Programme criteria Focus on delivering objectives of diversification, leverage, effective deployment and additionality Minimum requirements for bids to be compliant TARGET MARKET INVESTMENT STRATEGY INVESTMENT SIZE AND TENOR DEPLOYMENT OF FUNDS COMMERCIAL RETURNS MATCHED FUNDING PARI PASSU INVESTMENT TERMS MANAGEMENT TEAM AND TRACK RECORD LEGAL STRUCTURE, REGULATION & DOMICILE 20
Investment Programme criteria TARGET MARKET Funder of UK SMEs with t/o < 100m (i.e. your customers) Preference for t/o < 25m INVESTMENT STRATEGY Must be focused on debt finance Strong interest in supporting asset finance INVESTMENT SIZE AND TENOR Open to requests for 10m to 100m Investment tenor of <10 years 21
Investment Programme criteria DEPLOYMENT OF FUNDS Deploy funds within 3 years of commitment Ability to lend quickly to benefit SMEs Require evidence of origination capability COMMERCIAL RETURNS Must generate commercial return that meets needs of private sector investors MATCH FUNDING Maximum commitment of 50% investment requirement Require evidence of match funding New leases funded from existing facilities can qualify 22
Investment Programme criteria PARI PASSU INVESTMENT TERMS Seek to invest on the same basis as private sector investors MANAGEMENT TEAM AND TRACK RECORD Successful and relevant track record LEGAL STRUCTURE, REGULATION & DOMICILE Transparent and appropriate investment, regulatory and tax structures 23
Investment Programme process Expression of Interest Initial Meeting I II III Formal Proposal Award Due Diligence VI V IV Management Presentation Completion Commitment and Drawdown VII VIII Lending 24
Expansion Capital Initiative Launched on 2 February 2015 BBBIL can invest in equity / pref shares / mezzanine or other form of risk capital as lead or sole investor, typically senior to owners equity Development and growth capital to speciality SME lenders Commercial rate of return reflecting risk undertaken No requirement for investments to be match-funded provided: Sufficient leverage of BBBIL funds Additional funds in place to support business plan development Strong fit to Investment Programme objectives Appropriate risk / reward profile and covenants Expansion capital investments can be made alongside other BBBIL funding e.g. block lines 25
BBBIL investment: Example 1 Current financing in place 5m Equity 20m Bank funders Financing post 16m BBBIL Investment 5m Equity 3m Equity Growth in equity 8m New funding lines New third party debt financing 16m Bank funding 10m New BBBIL funding c. 20m loan book c. 40-45m loan book 26
BBBIL investment: Example 2 Current financing in place 4m Equity Financing post 20m BBBIL Investment 4m Equity 4m Risk Capital Expansion Capital 16m Bank funding 16m Bank funding 8m New funding lines 16m Debt Financing New third party debt financing Direct Capital Investment (Co-investor) c. 15-20m loan book c. 45-50m loan book 27
What success looks like + Not 28
Parting Message: We re here to help talk to us. Questions? 29