Fund Managers

BBB to pilot £100m SME loan guarantee scheme

Finance providers will be invited to submit responses to a request for proposals next month as the UK prime minister pledges state support for lending to high-growth business.

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British Business Bank (BBB) is to pilot a new ‘Help to Grow’ debt financing programme proposed by the government. The £100 million ($152 million; €134 million) initiative was announced in a speech by UK prime minister, David Cameron, who promised that, if re-elected in May, he would put government funds into the scheme.

Next month, BBB will issue a request for proposals from potential private sector partners for the programme. It will be open to any finance provider, including debt funds, though the state-related lender will apply qualifying criteria to participants.
The scheme will be aimed at fast-growing businesses that do not have the collateral or face other restrictions in accessing finance.

Most of the details of how the programme could work are yet to be worked out. Structures for potential loans under consideration include state guarantees (provided by BBB) and co-investment alongside debt funds.

The first loans are expected to be made by autumn and instruments under consideration include subordinated and mezzanine debt. The BBB will not lend directly to borrowers.

The state-backed lender already provides finance via investments in a number of alternative lenders. These include Beechbrook Capital, Funding Circle, MarketInvoice and Zopa in the small-cap space and Alcentra, Ares, Hayfin, ICG, M&G Investments and Pricoa in the mid-cap space.

The announcement, expanding on the prime minister’s speech, highlighted that the bank’s own research shows that most private debt providers target lending to companies with deal sizes of more than £10 million, while very few do smaller deals, particularly in the £2 million to £5 million range.

BBB said that the programme was influenced by the Small Business Investment Company programme in the US as well as France’s Contrat de Développement Participatif.

British Business Bank is not a bank lender. It was established by the government in 2012 and is tasked with increasing the supply of finance to small- and medium-sized UK businesses.