Written evidence submitted by British Business Bank (LRS0064)


About the Bank


The British Business Bank (The Bank) is a government-owned economic development bank. We aim to make finance markets for smaller businesses work more effectively, allowing those businesses to prosper, grow and build UK economic activity. The Bank has a single shareholder, the Secretary of State for Business, Energy and Industrial Strategy (BEIS). On his behalf we manage the UK Government’s access to finance programmes for smaller businesses, within a single commercially minded institution, supporting Government initiatives such as the Industrial Strategy. The Bank received State aid clearance to start operating in November 2014.


The British Business Bank is not a bank in a conventional sense. We work on a wholesale basis through the market to provide funds and guarantees to private sector partners, enabling them to finance a greater number of smaller businesses (either through debt or equity). The Bank uses economic evidence to design programmes that address market failures and gaps affecting smaller businesses across the economy, crowding in and not crowding out private sector activity, with the aim of allowing us to exit these markets once failures have been addressed. We also work to improve smaller businesses’ awareness of the finance options available to them.


The British Business Bank is delivering some of the Government’s key economic recovery programmes in the wake of the Covid-19 pandemic: Coronavirus Business Interruption Loans (CBILS), Coronavirus Large Business Interruption Loans (CLBILS), Bounce Back Loan Scheme (BBLS), and the Future Fund. As of 18 August 2020: CBILS lending data stood at: £13.7bn. CLBILS lending data stood at: £3.5bn. BBLS lending data stood at: £35.5bn, and the Future Fund at £588.3m convertible loans approved.


The British Business Bank has six strategic objectives, against which it measures its success:



Delivery to date

1. Increase the supply of finance available to smaller businesses in areas where markets do not work effectively.

British Business Bank programmes are supporting more than £7.7bn of finance to over 94,900 smaller businesses (as at December 2019). The stock of finance supported by the bank grew by 25% year on year (i.e. from December 2018 to December


2. Help create a more diverse market for smaller business finance with greater choice of options and providers.

92.6% of British Business Bank-supported finance is currently being delivered via non- major (‘big-5’) banks (as at December 2019).





1 This figure does not reflect sums deployed as part of the Coronavirus support schemes, which are reported separately elsewhere in this document.


3. Identify and help to reduce imbalances in access to finance for smaller businesses across the UK

The Bank’s dedicated regional funds now support more than £240m of finance. To support its regional activities further, it introduced a new Regional Angels programme and a UK Network of Bank colleagues located

across all regions of the UK.

4. Encourage and enable SMEs to seek the finance best suited to their needs

Our research shows that awareness of the Bank reached 24% for 2019 (excluding permanent non-borrowers, up from 20% in


5. Be the centre of expertise on smaller business finance in the UK, providing advice and support to Government

The Bank worked across Government to support priorities such as housing – with guarantees for up to £1bn to support lending to smaller housebuilders – and national security. It also published five major reports, including a ground-breaking Defined Contribution Pensions report in September


6. Manage taxpayer resources efficiently and within a robust risk management framework.

The return on capital across British Business Bank programmes for the period from 1 April 2018 to end March 2019 was 3.6%.

Since the Bank was created, it has generated excess returns ahead of its five-year target

amounting to £195m.


Local Structures and programmes



Through its role as the UK’s development bank, the British Business Bank has been working to tackle the well-documented disparities in access to finance across the UK. The Bank has a specific objective to identify and help to reduce imbalances in access to finance for smaller businesses across the UK.

SMEs play a vital role in driving growth. For new businesses to grow, they need awareness of and access to a variety of financing options. Unfortunately, the SME finance picture is not consistent


nationally. Understanding and use of both equity and debt finance varies from region to region, and often significantly within regions. London and the South East is dominant in a range of measures: it accounts for the largest share of equity, both by number of deals and by value, and the region’s SMEs have the highest levels of knowledge and understanding the financing opportunities available to them.

Ensuring that businesses with growth potential and aspiration can access the finance they need is important for long-term UK competitiveness. Through providing competition and introducing innovations to markets, SMEs can play a vital role in driving growth across less productive regions of the UK. SMEs, high growth or not, are significant contributors to every sector and every region of the UK economy, and are central to generating new jobs and productivity gains.

Bank research shows that the regional distribution of retail bank lending to SMEs is broadly in line with the distribution of the SME population.2 Where regional imbalances are most apparent is in equity markets. London accounts for the majority (53%) of the value of equity finance deals in the UK, although it is home to only around 20% of UK High Growth Businesses.3 It also accounts for the majority (54.7%) of the value of angel finance. Conversely, despite being home to 7.5% of UK high growth businesses, the West Midlands only saw 3.2% of the value of the UK equity deals. Similarly, the South West only saw 1.9% of the value of UK equity deals, despite being home to 8.6% of UK High Growth Businesses.


In response to this mixed national picture, the Bank has put in place a variety of funds and programmes to tackle the underlying drivers of such imbalances. Our actions are geared to supporting the supply of finance across the UK’s regions, with the long-term goal of developing sustainable finance ‘ecosystems’ led by private sector activity. For example nearly 60% of venture capital investments between 2011 and 2015 in the North of England were public sector backed, compared to under 5% in London. 4 Our goal is to close this gap over the long-term through catalysing and encouraging private sector venture capital activity to meet the majority of the demand, allowing government to step back from these markets.

In addition to encouraging the supply of finance, we see a strong role for the Bank in addressing the demand for finance which often receives less attention compared to providing additional supply. BBB analysis shows clear gaps between SMEs based in London and the South East and elsewhere in the country. This applies particularly for equity and growth finance. 74% of SMEs in London were aware of venture capitalists, whilst areas such as the North or Midlands had awareness rates of 67% and 66% respectively.5 Similarly, 47% of SMEs in London are aware of business angels as a form of raising external finance, whilst only 39% of SMEs in the North and 35% of SMEs in the Midlands were aware.6

The Bank’s view is that demand activities are complementary and necessary to efforts to increase supply and reduce regional imbalances. We have therefore invested considerable efforts to bolster our work in these areas notably through creating a regional presence and developing a ‘best in class’ online information resource.


2 Small Business Finance Markets 2019 report

3 The ONS define high growth as ‘All enterprises with average annualised growth greater than 20% per annum, over a three-year period. Growth can be measured by the number of employees or by turnover’

4 British Business Bank analysis of Beauhurst data

5 The British Business Bank Finance Survey

6 The British Business Bank Finance Survey


The following summarises the range of activities being undertaken by the Bank both in terms in of supply of finance and in addressing the demand for finance amongst SMEs.

Supply of finance

Regional Funds

Working in partnership with Local Enterprise Partnerships, the Bank has set up and using its expertise, manages three regional investment funds dedicated to addressing the UK’s regional imbalances in smaller business finance. These are:


These three regions have been allocated European Regional Development Fund (EDRF) funding based on their levels of economic deprivation. In England EDRF funds are administered by the Ministry of Housing, Communities & Local Government through the system of Local Enterprise Partnerships (LEPs). MEIF and NPIF are unique across England in that they are examples of multiple LEPs across wider regions opting to pool funds into a larger entity and therefore achieve the benefits of economies of scale. They attracted both new and existing funding from Central Government, the British Business Bank and European Investment Bank (EIB), in addition to the EDRF funding outlined. The Cornwall and Isles of Scilly LEP have also wanted to work with the Bank to create an investment fund that could provide debt and equity to growing businesses in Cornwall through a combination of ERDF and LEP resources.


These regional funds provide both debt and equity to businesses across their respective regions to deal with supply side constraints that prevent businesses accessing the finance that they need. Between them they provide finance worth around £700m. They are helping to develop  the business networks and as noted earlier, the wider ‘ecosystem’ that can support these firms as they grow and nurture regional entrepreneurship for the long term.


Each of these three funds have been independently evaluated and have been found to be  having a positive impact on productivity of investee companies by supporting investment in innovation, skills, creating new jobs, supporting exporting and capital expenditure.


The Bank takes a close interest in the progress of The North East Fund which is contemporaneous with NPIF and shares a very similar overall funding structure and delivery model. It has a total value of £145m and is partially capitalised by the returns arising from a previous generation of publicly funded SME finance programmes in the region.



In December 2018 the Bank also announced a £10.5m commitment to a fund aimed exclusively at supporting growing businesses in Northern Ireland. The £30m Growth Finance Fund includes a £7.5m commitment from Invest Northern Ireland and £12m from private investor Northern Ireland Local Government Pension Scheme. The fund will provide loans from £500,000 to £2m over the next four years and made its first investment in March 2019.


Start Up Loans


The Bank’s Start-Up Loans programme has a long track record of providing debt finance to less productive regions of the UK. This initiative offers loans (£500 to £25,000, at 6% p.a. interest) to individuals looking to start or grow a business in the UK. 38% of loan recipients from the programme to date reside in the 20% of the country’s most deprived areas. In addition to funding, successful applicants are offered free business support and access to a business mentor for up to 12 months after receiving funding, thereby enhancing their chances of success.


Since its inception in 2012, the scheme has delivered loans to support over 75,000 businesses, providing over £623 million of funding. Over the lifetime of the scheme the average loan size stands at £8,346, which has steadily increased over time. In 2019/20, the scheme distributed 8,507 loans, drawing on £95.4 million of finance at an average loan size of £11,209, up from an average of £10,543 in 2018/19.


Regional Angels Programme

Announced in the Autumn Budget 2017, the Bank’s £100m Regional Angels Programme helps to develop clusters of business angels around the UK and outside London where angel activity is already well established. Business angels tend to be high net worth individuals (HNWI) who invest their own money in an area that they have previous expertise in. The HNWI population is much more regionally diverse, in comparison to equity fund managers, which means that there is a greater opportunity to increase funding outside of London.


The programme, which formally launched in October 2018, aims to raise the profile and professionalism of angel investment activity in other parts of the UK and to attract further third- party capital alongside business angels while generating a market rate of return. Through this it aims to increase the availability, supply and awareness of angel and other early-stage equity investments across the country, particularly in areas where this type of finance is less readily available. It works by committing funds for investment alongside business angels and other early stage equity investors, acting as a catalyst to bring longer-term capital to smaller businesses with growth ambitions.


In April 2020, British Business Investments (BBI), a commercial subsidiary of the Bank, announced a new £15m commitment to venture capital investors Par Equity, as the latest partner in the Bank’s Regional Angels Programme. The funds from BBI will be invested by Par Equity alongside the Par EIS Fund and the Par Investor Network to deliver over £75m of new funding for scale-up businesses primarily in the North of England, Scotland and Northern Ireland.


Also in April 2020, BBI committed £10m to the angel network and seed investors, Startup Funding Club (SFC). The commitment will be managed by SFC and invested alongside the SFC SEIS & EIS Funds as well as the SFC Angel Network. SFC intends to deploy the commitment in over 100 early stage businesses across the UK to deliver almost £40m of new funding for start- up and scale-up businesses across all sector

Enterprise Capital Funds


The Enterprise Capital Fund Programme (ECFs) combines private and public money to make early stage venture capital equity investments up to £5m in high growth businesses and is designed to increase the supply of equity finance to growing companies across the UK.


The ECF Programme is demand led and is managed by a number of experienced Fund Managers from a variety of backgrounds across the UK. Analysis of the current portfolio shows that over

£200m of investment has been made by ECF Fund Managers outside of London and the South East. Some of these managers have a strong regional focus:




Demand for finance


In October 2018 the Bank established a new Demand Development Unit (DDU). It has been specifically created to develop the Bank’s positioning and relationship with smaller businesses across the UK, i.e. the ’demand’ side of the Bank’s business and thereby help us in better supporting our delivery against two of our objectives:



As set out below, the DDU will deliver through two means: first, by developing and maintaining an ‘information service’ that provides SMEs independent and impartial information about their finance choices; and second, managing a new UK Network team that covers all parts of the UK.




For markets to work effectively requires information so consumers or in the case of the Bank, SMEs, can make informed decisions. Evidence however suggests that many SMEs may have insufficient information on the types of finance available, possible providers and the benefits to using external finance. This lack of information or awareness may affect SMEs’ willingness to apply for finance that could otherwise enable them to grow. Information gaps can also lead to an inefficient allocation of capital, constraining business development and potentially resulting  in forgone growth across the UK economy.


The DDU has been established to address the underlying issues behind these behaviours. It does so by focusing on raising awareness of the different finance options available to UK SMEs, encouraging and enabling SMEs to seek the finance best suited to their needs. It has two online information sources targeted at two SME audiences to help in those efforts.


The Finance Hub


In September 2018, the Bank launched a new website, the ‘Finance Hub’, that offers independent and impartial information on different finance options for scale-up, high growth  and potential high growth businesses. It targeted this audience on the basis that our research showed these businesses were most amenable to taking on this information; and that if then acted on the information, they would make the greatest economic impact. Throughout, the design and development of the Finance Hub has been based on direct feedback from SMEs themselves.


The new site features infographics and checklists to help businesses get ‘investor ready’ as well as simple to use articles and guides from finance providers on how smaller businesses can identify and access finance suited to their growth ambitions. At its heart is the Finance Hub’s new Finance Finder, a simple six-step tool that enables smaller business to explore and identify some of the finance options that might work for them.


Central to the development of the resource is a partnership between British Business Bank and a number of industry leading editorial partners who have provided their expertise on a range of

17 types of finance included in the Finance Hub. Editorial partners include Beauhurst, British Private Equity & Venture Capital Association (BVCA), BGF, finnCap, London Stock Exchange Group, Peer to Peer Finance Association (P2PFA), ScaleUp Institute, Tech Nation, UK Business Angel Association (UKBAA), UK Crowdfunding Association, UK Export Finance and UK Finance. Six marketing partners have also joined the group including CBI, FSB, ICAEW, NACFB, Creative Industries Federation and 100 Stories of Growth.


The British Business Bank has invested in a digital promotional campaign to support the Finance Hub. The campaign spans multiple digital channels, including paid social media and search, and targets decision makers within scale-up, high growth and potential high growth businesses. Supporting material on the Finance Hub is be tailored to address specific issues faced by individual regions.


UK Network


In response to the Government’s Industrial Strategy White Paper, which outlined the need for a formal British Business Bank regional structure, the Bank established a UK Network (UKN) - a team of colleagues based in every region and country across the UK. That team has been operational from autumn 2018.


UKN engages with business finance stakeholders in each of the English regions and devolved nations with three core objectives:


i.            To increase small businesses’ awareness and understanding of the finance options best suited to their needs, supporting work through our online information offer;


ii.            To develop a deep understanding of the business finance ecosystems in all parts of the UK, so that, ultimately, the British Business Bank can improve its support to SMEs across the entire UK; and

iii.            To add value to the business finance ecosystems across the UK, by enhancing collaboration and co-ordination within and across each English region and Devolved Nation.

Since its establishment in autumn 2018 up to the end of August 2020, the UKN has held over 2400 engagements with regional stakeholders. This level of engagement will continue during financial year 2020/21. Each UK region (sub-region) and devolved nation is unique, with its own business finance challenges and opportunities. By engaging with stakeholders within each area, the British Business Bank will develop a deep understanding of the challenges and opportunities in each place, so that its future activity can be tailored to reflect those needs. By working closely with regional stakeholders, the Bank aims to build effective two-way stakeholder relationships, to help strengthen the business finance ecosystems across the UK, by enhancing collaboration and co-ordination within and across each English region and Devolved Nations, and by spreading good practices and expertise.

By doing so, the British Business Bank provides better information on finance options to smaller businesses, identifies regional imbalances, and ensures deeper understanding of the different ecosystems in the UK as the Bank becomes a centre of expertise in regional access to finance.

Regional funding

As noted earlier, all of the three regional funds in which the Bank is involved have a significant element of European funding (both European Regional Development Fund and EIB funding), alongside UK public and private funds.

The core capabilities of the Bank are in designing and operating financial instrument-based programmes targeting SMEs, similar to those that may be proposed as part of the UK Shared Prosperity Fund (UKSPF). The Bank may therefore be asked to develop and deliver a financial instrument element of the UKSPF, or as separate from it. Through our existing Regional Funds, we are gathering considerable experience in working with local partners to help reduce regional disparities; we have the ambition to build on this work further and stand ready to assist government accordingly.

One complication with addressing market failures in SME access to finance is that effective interventions need to operate at some scale in order to attract high quality fund management expertise, leverage in private capital, and consider a sufficiently wide portfolio of potential investments. This can require collaboration across geographies. The Bank has experience of working with local areas to address this challenge through our current Northern Powerhouse  and Midlands Engine investment funds, which offer one model for individual LEPs being heavily involved in strategic decision-making alongside the Bank providing scale and expertise to deliver shared programmes across a larger geography. Building on this experience, the Bank stands ready to work with other local areas to explore how we can assist addressing their own SME access to finance needs.

September 2020