OTS Maribor - MARK HAMBLY
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The British Business Bank aims to improve the UK finance market for small businesses by providing guarantees that facilitate lending through various financial institutions. Since its establishment in 2014, it has focused on increasing access to finance for SMEs, with commitments of up to £10bn to help stimulate business investment and growth. The document outlines the different types of guarantees used, their benefits to lenders, and links to further information about specific programmes.
OTS Maribor - MARK HAMBLY
- 1. www.british-business-bank.co.uk @britishbbank British Business Bank UK Guarantee Programmes AECM Operational Training Session Maribor 16th & 17th April 2015
- 2. www.british-business-bank.co.uk @britishbbank Contents • Introduction to BBB (Slides 3-5) • Use of Guarantees in UK (Slides 6-10) • Links to further information (Slide 11) 2
- 3. www.british-business-bank.co.uk @britishbbank British Business Bank • Change the structure of the finance markets for smaller businesses, so they work more effectively and dynamically • This will help business prosper and build economic activity in the UK • PLC since 1st November 2014. An Economic Development Bank A plc – 100% owned by UK Government Working with 80 partners – banks, fund managers, angel networks, micro-finance institutions etc. 3
- 4. www.british-business-bank.co.uk @britishbbank Our model Start-up funding providers Business Angels Asset Finance providers Banks Venture Capital providers Debt funds Trade Credit providers Supply-chain Finance providers Peer-to-peer Lenders Private Sector Money Private Sector Money Expertise Designing solutions to make finance markets for small businesses work better Money £3bn of public funding commitments Invoice Finance / Factoring 4 Source: British Business Bank, December 2014
- 5. www.british-business-bank.co.uk @britishbbank 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 5
- 6. www.british-business-bank.co.uk @britishbbank Where do we use Guarantees? - 1 Portfolios of SME Lending (Enterprise Finance Guarantee) • by banks and other lending institutions (e.g. micro-finance, invoice finance) • new origination and refinancing (capped at 20% of portfolio) • term loans, overdrafts, invoice finance facilities • sound lending proposition but facing decline due to inadequate security • Lender must apply “Normal Commercial Lending Practice” in all respects, including with regard to collateral, but “Principal Private Residence” exclusion • benefit of the guarantee is to the lending institution on a capped shared loss basis (75% guarantee rate, 20% gross cap) on annual portfolios • borrowing SME pays a premium/fee and is deemed to have received de minimis State aid • provided continuously (although with occasional eligibility and other changes) in some form since early 1980s • facilitates approx. 3,000 loans / £300m per annum through 40 institutions 6
- 7. www.british-business-bank.co.uk @britishbbank More on the Enterprise Finance Guarantee 7 • Sovereign Guarantee • provided by Secretary of State for Business, Innovation & Skills • to Lending Institution, not Borrower • financial benefit of the guarantee is to the lending institution on a capped shared loss basis (75% guarantee rate, 20% gross cap) on annual portfolios • single indivisible transaction – not separate “guaranteed” and “commercial” portions • transactional decision-making devolved to Lending Institution but reported to BBB on-line and guarantee confirmed immediately • borrowing SME aware of Guarantee BUT NOT a party to it • Government as Guarantor is aware of Lending institution’s valuation but has no direct rights to security held by Lending Institution • a guarantee, not a form of insurance • Each Lender determines own treatment for regulatory capital purposes
- 8. www.british-business-bank.co.uk @britishbbank Where do we use Guarantees? - 2 Portfolios of SME Lending (ENABLE) • by banks • new origination • SME lending transaction criteria as agreed with lender • optimises capital consumption by making new lending less capital intensive (i.e. counter-balance to regulatory constraints) • enables originators to grow SME lending and/or expand into more capital- consumptive market segments • financial benefit of the guarantee is to the lending institution • lender pays a premium/fee • newly launched – first transaction announced with Clydesdale and Yorkshire Banks in March 2015 and will support £125m of new lending to smaller businesses, including at least £50m will go to products and industry segments the bank have not previously covered 8
- 9. www.british-business-bank.co.uk @britishbbank Where do we use Guarantees? - 3 Portfolios of SME Lending (Growth Loans) • by banks and other lending institutions (e.g. debt funds) • principally new origination • term loans, including possibility of deferred repayments and possible up-side participation (i.e. mezzanine structures) • focus on sound propositions (£500k-£2m) which are not currently within lender appetite, generally because of the high cost of due diligence for smaller deals and the lack of track record for the asset class • financial benefit of the guarantee is to the lending institution on a capped shared loss basis • payment of premium/fee and State aid treatment determined according to structure of individual lender proposals • Request for Proposals issued 18th March 2015 9
- 10. www.british-business-bank.co.uk @britishbbank Where do we use Guarantees? - 4 Previous Pilots and Potential New Ideas Trade Credit Enterprise Finance Guarantee • Guarantee of credit limits provided to SMEs by major suppliers, primarily in construction (now closing) Wholesale Bank to CDFI Guarantee option within Enterprise Finance Guarantee • Guarantee of bank lending of capital to micro-finance institutions for on- lending to SMEs to which banks will not generally lend direct Asset Finance Guarantee • Potential for a new variant within EFG covering asset finance transactions Guarantee for ‘Peer to Peer’ Lending • Early stage thinking – but fundamental question is “Who is the Lender?” 10
- 11. www.british-business-bank.co.uk @britishbbank Links to other BBB Documents Enterprise Finance Guarantee (EFG) Programme http://british-business-bank.co.uk/market-failures-and-how-we-address- them/enterprise-finance-guarantee/ Evaluation of Trade Credit Enterprise Finance Guarantee Pilot http://british-business-bank.co.uk/performance/evaluations-of-british-business- bank-programmes/trade-credit-enterprise-finance-guarantee-evaluation-and- response/ Growth Loans Pilot Programme http://british-business-bank.co.uk/market-failures-and-how-we-address- them/growth-loans/ ‘ENABLE’ Wholesale Guarantee http://british-business-bank.co.uk/market-failures-and-how-we-address- them/wholesale-solutions/ 11
- 12. 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. BBB 011214 22 www.british-business-bank.co.uk @britishbbank