Last week we reported on the Small Business, Enterprise and Employment Act 2015 and how it sets out a framework for the sharing of key information on SME lending between established banks and alternative finance providers. This week we’re continuing with our look at SME funding following the announcement by the British Business Bank (the BBB) that its ENABLE Guarantee scheme is to be opened to all banks that lend to smaller UK businesses.

The proposed creation of the BBB was first announced in 2012. The aim of it was to attract private sector funding so that when fully operational, it could support up to £10 billion of new and additional business lending. It does not provide funding directly to companies but works with the private sector to improve access to finance for SMEs.

The BBB’s ENABLE Guarantee scheme aims to create capacity in banks’ capital to enable them to lend to more SMEs.   In return for a fee, the secretary of State for Business, Innovation and Skills provides the participating bank with a guarantee. The guarantee is in respect of losses that are unusually high for the type of lending, covering 75% of the ‘net credit losses’ in excess of income. The guarantee reduces the amount of capital that has to be allocated against such lending with the aim of encouraging the participating bank to lend to more small businesses.

The first transaction is to be with Yorkshire Bank and Clydesdale Bank and will support £125m of new lending, including £50m into new products and industry sectors.

The banks were chosen following a tender process focusing on:

  • Smaller SMEs
  • SMEs with a trading history of under 5 years
  • SME growth companies.

Vince Cable, Secretary of State for Business, Innovation and Skills said:

 “I set up the British Business Bank to give small businesses access to alternative finance schemes that were badly needed. It is delivering and is supporting £1.8 billion of finance to over 43,000 smaller businesses.

“This new guarantee programme will make it easier for challenger banks to lend to small businesses and help to accelerate the transformation of UK banking into a more dynamic and competitive marketplace.” 

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.