British Business Bank programme heralded for boosting SME access to debt finance
The British Business Bank’s Debt Funds programme has improved access to debt finance for smaller businesses across the UK and been successful at “crowding in” wider private sector investment into funds, according to an independent evaluation of the scheme.
An evaluation conducted by SQW working with Beauhurst revealed that, in the absence of the programme, approximately half of funds would not have secured other capital, while the remainder would have been “substantially smaller” in scale.
Finance additionality, which is “strong at the fund level”, is still evident even when the Bank has invested in follow-on funds, according to SQW and Beauhurst, pointing to the ongoing challenges in fundraising and the need for further support in the sector.
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The evaluation concluded that the Debt Funds programme has delivered against its objectives and made “an important contribution to addressing long-standing challenges in the smaller business finance market by increasing the supply and diversity of private debt finance”.
A survey of investee firms, as part of the assessment, found that debt funds-backed investments have accelerated company growth, both in terms of turnover and employment.
In absolute terms, this growth in turnover equated to a net impact of approximately £750,000 per company per annum for smaller businesses, and around £7.5m per company per annum for recipients of venture debt and preferred equity.
The independent assessment found that Debt Funds-backed (DF-backed) finance has helped beneficiaries to create approximately 1,400 net additional jobs in total, on the basis that the average beneficiary created between three and five new jobs.
The early data on financial returns is “encouraging”, with an internal rate of return from inception to March 2023 of 7.4 per cent, and potentially points to longer-term financial viability, according to SQW’s evaluation.
However, it suggested there is scope for the programme to have a wider role in influencing the attitudes and behaviours of investors, particularly institutional investors, who are not already involved in DF-backed funds.
SQW also found that the programme’s contribution to the Bank’s wider regionality objectives is “more mixed”, but that this reflected the fact that these were introduced towards the end of the evaluation period.
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Adam Kelly, managing director and co-head of funds at the British Business Bank, called it “very encouraging” that the British Business Bank’s Debt Funds programme has made a positive impact on the UK debt market and finance ecosystem.
“The evaluation also shows the continued need for the programme in a challenging fundraising market for smaller funds,” he added.
“The British Business Bank will continue to play a key role in this market, further developing the supply and diversity of private debt finance.”
Over the period from inception to March 2023, the programme has accrued interest of £114m and generated £189m in profit, with a “very low” write-off rate.
The UK government’s economic development bank, the British Business Bank was established in 2014, with a remit to design, deliver and manage UK-wide smaller business access to finance programmes.
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