Small and medium-sized businesses (SMEs) are set to receive a £70 million lending boost following government action to increase and diversify the availability of finance.
Three new lenders – Market Invoice, URICA and Beechbrook Capital – will share more than £30 million of government funding to offer SMEs alternatives to traditional bank lending. Each lender has committed to attracting additional funding from private sector investors, with the total expected to boost the pool of credit available to SMEs from these three lenders by more than £70 million.
Business Secretary Vince Cable said:
A lack of access to finance is still choking off too many small businesses, preventing them from growing, taking on new staff or investing in new equipment.
We are taking a range of actions to support SMEs and shake up business finance markets, including through the new business bank. Today’s £30 million announcement is an important boost for non-traditional lenders with creative and innovative solutions. It will increase competition and create a more diverse and balanced market for business lending.
The three lenders receiving a share of the £30 million are:
- Market Invoice has been awarded £5 million. It is an innovative online platform through which SMEs can raise funds by selling individual invoices to a pool of investors.
- URICA is being allocated £10 million. It will establish a new supply chain finance platform to provide a consistent channel of cash from institutional investors to SME suppliers by enabling early payment of their bills to mid-sized growth companies.
- Beechbrook Capital is receiving £17 million. It is a mezzanine fund manager and will establish a new fund to lend to SMEs focused on growth capital.
The funding comes from the small business tranche of the Business Finance Partnership (BFP). Through the BFP, the government committed to provide £100 million of funding for non-traditional lenders in order to diversify the sources of finance available to SMEs and improve competition. Currently, 85 per cent of all business loans are handled by the big four banks.
This is the second allocation of funding by BIS. The first allocation was made in December, when four lenders (Funding Circle, Zopa, BOOST&Co, and Credit Asset Management Ltd) were allocated £55 million.
The seven successful bidders announced under this programme are expected to facilitate total lending of more than £240 million to SMEs by attracting private sector investment alongside government’s funding.
Opportunities to use the small amount of funding remaining in the small business tranche of the BFP, in a way that best provides quick support to UK SMEs and mid-sized businesses, will be identified over the coming weeks.
The government already has a number of other measures in place to address access to finance issues for SMEs. Since January 2009 the Enterprise Finance Guarantee has helped businesses secure over £1.7 billion of loans and the £200 million Enterprise Capital Funds programme aims to address the long-term shortage of risk capital for high-growth SMEs.
The Business Secretary made the announcement in a speech at the Federation of Small Businesses. He also spoke about the Chancellor’s Budget announcement, which set out the progress of setting up a business bank and how the initiative will start making a difference straight away through:
- the launch this spring of a £300 million investment scheme to invest alongside private investors in financial institutions and non-bank lending channels to help diversify and expand the supply of lending to SMEs and mid-cap businesses
- £75 million funding for venture capital investment in early stage SMEs through an expanded Business Angel Co-investment fund, and an extension to the Enterprise Capital Funds
- continuing the raised level loan portfolio for lending under the Enterprise Finance Guarantee scheme.
Notes to editors
1.Details of the three lenders receiving funding today are below. For further information, please contact the respective company directly.
a.MarketInvoice gives small businesses flexible access to advances on invoices from their blue-chip corporate customers. Funds come from a network of institutional investors and high net-worth individuals, who bid competitively to buy the invoices.
MarketInvoice launched in February 2011, and now closes over 70 auctions each month, with an average auction value of £60,000 (range of £10,000 - £500,000). Since its launch, the platform has funded over 800 auctions, representing close to £50 million of invoices. http://marketinvoice.com/.
b.URICA is launching a new model of supply chain finance within the UK SME market that provides SME suppliers with the option to receive cash from Urica 14 days from the invoice issuance date in return for accepting a 2% early settlement discount. The customer will then pay Urica the full value of the invoice on day 60.
URICA is working in partnership with one of the world’s largest credit insurers to give direct access to a proven credit assessment engine. http://urica.biz/
c.Beechbrook Capital LLP was established in May 2008 to provide long-term loan capital to businesses in Northern Europe. The new fund will deploy a diversified portfolio of mezzanine loans to SMEs in the UK. www.beechbrookcapital.com/
2.The Business Finance Partnership (BFP) aims to ease the flow of credit to businesses in the UK by helping to diversify the sources of finance available to them. It is part of a larger programme of credit easing measures announced in the Autumn Statement 2011 to support smaller and mid-sized businesses that do not have ready access to capital markets.
3.The business bank will start operating programmes from within the Department for Business, Innovation and Skills (BIS) as an interim organisation next month and is expected to become a fully operational new institution in the Autumn of 2014. References to the business bank before then refer to the team within BIS responsible for the development and operation of its policy and programmes before it becomes a fully operational new institution.
4.Competition for funding under the Small Business Tranche of the Business Finance Partnership was launched on 31 May 2012 and closed on 4 July 2012. The first four lenders selected were announced in December 2012. Investments are subject to legal and commercial terms being finalised with applicants and, where applicable, parliamentary approval being given.
5.The first four lenders selected were Funding Circle, Zopa, BOOST&Co and Credit Asset Management Ltd (CAML). Details of each are below.
d.Funding Circle is an online marketplace enabling savers and investors to side-step banks and lend directly to small businesses. Set-up in August 2010 Funding Circle has helped businesses borrow over £60million. Each loan is comprised of small amounts of borrowing from many different people who compete to lend to the business in question, this enables the business to borrow at a better rate. With no bank in the middle both investors and borrowers achieve a much better deal with investors receiving an average 9.1 per cent yield on their money. www.fundingcircle.com
e.Zopa is a peer-to-peer online platform that brings together people who are good with their money, to reward them with better rates on their borrowing and saving. Responsible, creditworthy borrowers get access to loans cheaper than banks offer, with no additional fees for paying some or all the loan off early. By lending to these people, savers get inflation-beating returns far higher than paid by banks’ savings accounts. Zopa has now arranged more than £250 million in peer-to-peer loans in the UK, all at rates that borrowers and lenders have effectively agreed between themselves. Zopa now accounts for around two per cent of all personal loans issued in the UK each month. Zopa can be found at www.zopa.com.
f.BOOST&Co has been providing debt solutions to growing and innovative small business throughout Europe since 2011. It is management-owned and funded today by some of Europe’s largest private equity investors and family offices. It has offices in London, Paris and Berlin. The Business Finance Partnership funds will allow BOOST&Co to provide loans to UK small businesses at scale. More information at www.boostandco.com
g.Credit Asset Management Ltd (CAML) is a subsidiary of City of London Group plc which uses a traditional merchant banking model across its business platforms to provide specialist financing to the SME sector. Credit Asset Management Limited provides leasing and professions loans. CAML also enables institutional investors to secure efficient exposure to the SME sector. www.craml.co.uk/
6.A total of £1.2 billion worth of funding has been made available, with £100m allocated to the Small Business Tranche of the BFP. The remaining £1.1bn is targeting mid-sized of businesses, and being allocated by HM Treasury (HMT).
7.HMT announced in December 2012 that it will invest £600 million alongside an initial £650 million from the private sector to create four new funds that will lend to mid-sized companies. These funds are now open for business and will greatly expand the market for such lending in the UK. The fund managers are Alcentra Limited, Haymarket Financial, M&G Investment Management and Pricoa Capital. An additional £100m is expected to be invested with a fifth fund manager shortly. www.hm-treasury.gov.uk/bfp.htm
8.Businesses that offer non-traditional channels of lending may not be regulated by the Financial Services Authority or the Office of Fair Trading and may carry a higher degree of risk than other investments. By making these investments the government is in no way endorsing or guaranteeing any particular channel, platform or investment, and investors should not, therefore, in any way treat the government’s involvement in an investment as an indication of the investment’s soundness. Private investors, in particular, should consider seeking independent financial advice before making investments decisions of any kind.
9.The government’s economic policy objective is to achieve ‘strong, sustainable and balanced growth that is more evenly shared across the country and between industries’. It set four ambitions in the ‘Plan for Growth’ (PDF 1.7MB), published at Budget 2011:
- to create the most competitive tax system in the G20
- to make the UK the best place in Europe to start, finance and grow a business
- to encourage investment and exports as a route to a more balanced economy
- to create a more educated workforce that is the most flexible in Europe.
Work is underway across government to achieve these ambitions, including progress on more than 250 measures as part of the Growth Review. Developing an Industrial Strategy gives new impetus to this work by providing businesses, investors and the public with more clarity about the long-term direction in which the government wants the economy to travel.