British Business Bank chief executive Keith Morgan

British Business Bank Keith Morgan May 2014

The state-funded British Business Bank has no high-street branches – but it’s helping SMEs secure much-needed finance, says chief executive Keith Morgan

Until recently the UK was the only G8 country without an economic development bank. Germany’s post-war development was overseen by state bank KfW, while in the US companies such as Apple and Federal Express were nudged towards success thanks to early-stage finance from the country’s Small Business Administration. But there has been no government-backed financing body in the UK for nearly three decades.

The British Business Bank (BBB) aims to fill that gap. Formally launched last October, BBB intends to tackle the chronic shortage of funding for SMEs. Operated by the civil service, the Sheffield-based ‘bank’ has no high-street presence and doesn’t lend to companies directly. Instead, SMEs access BBB’s £1.25bn worth of capital via various other financial institutions – from challenger banks to crowdfunders.

At BBB’s helm is Keith Morgan, the former Abbey National and Banco Santander executive who oversaw the government’s post-bailout Northern Rock shareholdings at UKFI (UK Financial Investments). More than 10,000 businesses have benefited already from the BBB’s support, with £660m lent or invested during 2013. A further £250m was pumped into the BBB last December.

But the BBB hasn’t been without its teething problems. Some have been confused by its nebulous ‘is-it-a-bank-or-isn’t-it?’ status and the myriad organisations it uses to distribute money.

Here, Morgan answers the critics, discusses investing in alternative lenders and explains how the BBB is helping thousands of SMEs take advantage of economic recovery…

Some SMEs have mistaken the BBB for an actual bank. Does this worry you? 

Elements of what we do are in line with people’s expectations of a bank, such as ensuring finance reaches SMEs that need it. But we aren’t a bank with high-street branches and branch managers – it’s probably best to think of the British Business Bank as a sort of economic development bank for the UK. We’re not trying to compete with the marketplace – or indeed distort it. Instead, we’re trying to work across existing channels to ensure if there is a shortage of funding capacity, we can move the market into areas it doesn’t cover sufficiently well.

Why does the UK need the BBB? 

The SME sector is very important to the economy’s success. It represents 60 per cent of the jobs in the private sector. But levels of SME investment in the UK aren’t as high as, say, France or Germany. The finance that goes to SMEs is used to invest, which creates growth and jobs.

How can SMEs benefit from your help? 

It depends upon the type of SME you are and where you are in your journey. If you’re an early-stage SME, then it’s relevant to look at sources of equity. In which case, the work we do through Angel CoFund syndicates may be appropriate. If you’re at a slightly later stage, you’ll be seeking venture capital, such as the work we do through our Enterprise Capital Funds.

How do SMEs secure finance through the BBB?

By going to or, they’ll find financing options that will be supported by the BBB. For example, if a digital company without tangible assets went to their bank and were told they didn’t have sufficient collateral, they could ask [the BBB] if they qualified for an Enterprise Finance Guarantee, designed to facilitate lending to companies which don’t have that tangible asset base against which the bank would normally lend. What we’re doing is generating additional lending for that type of company.

The BBB focuses on areas with “greatest potential impact”. What are these? 

If you’re a small SME without a significant track record, it’s going to be more difficult for you to secure the credit you want. That’s because the costs of conducting the credit assessment and due diligence are relatively high for the size of investment or loan that the borrower might be seeking. We should be prioritising our efforts in areas that aren’t working… The ones that deserve our attention are a) early-stage/start-up SMEs b) more-established SMEs that have growth ambitions and c) stable SMEs which aren’t able to get the finance they need because of the level of risk they hold.

Nearly half of SMEs apply for finance a week before needing it. What could they do differently? 

By virtue of the everyday job, [running] SMEs is tough because you’re worried about the future of the business – what’s happening next week, next month. What we’re seeing at the moment is SMEs going to their large-bank relationship when requiring funding. We’d like to encourage SMEs to think through the full range of options available – whether it’s a professional adviser, accountant, lawyer, BBB or

Four banks in the UK control 85 per cent of lending. How does BBB plan to break that monopoly? 

We think there’s greater value in diversity. We’re committing a large portion of resources to new and alternative platforms offering financial services, such as crowdfunding. Over half of the £660m we invest is with alternative or new lenders. We’d like to see that sector grow, which is why we’ve invested £40m into peer-to-peer platform Funding Circle and invoicing discounting platform MarketInvoice.

Can you give examples of SMEs that have benefited from your support? 

Donbac [one of our 42 Enterprise Guarantee Scheme partners], helped a Yorkshire-based design agency called Sugarcane, who have subsequently hired new staff, invested in their in-house marketing capability and enjoyed some of their best trading as a result. Meanwhile, in Hampshire, tech company VectorCommand didn’t have many assets against which they could secure a high-street bank loan. However, through MarketInvoice, they’ve managed to raise finance against trade invoices, helping them fund continued growth.

Historically, such development banks are expected to lose money. How will BBB seek a return on its investments? 

We want to have an impact on increased economic activity but also look carefully after taxpayer resources. We should be returning to the taxpayer the cost of their capital and government funds… But we’re not seeking to operate as a private sector bank where profit is the prime motivation. Our motivation is to make sure we cover the cost of the capital we’re given but to deliver ‘greater good’ beyond that.

What’s next for BBB? 

By the end of 2014, we’ll be operating as an arm’s-length operation, still owned by the government, but with a board functioning as a plc. That board will start to function once we’ve secured state aid approval from Brussels, expected in the autumn.

What would you urge SMEs to do now? 

I’m encouraging SMEs to be resourceful. The BBB is taking steps to encourage growth, and catalysing greater scale in new options, which include new platforms, challenger banks, and direct debt funding. SMEs need to know there’s a much greater wealth of finance options they can tap into.

For more information on the British Business Bank, visit

About author

Christian Koch

Christian Koch

Alongside his work for Director, Christian has written features for the Evening Standard, The Guardian, Sunday Times Style, The Independent, Q, Cosmopolitan, Stylist, ShortList and Glamour in an eclectic career which has seen him interview everybody from Mariah Carey to Michael Douglas through to Richard Branson with newspaper assignments including reporting on the Japanese tsunami and living with an Italian cult.

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