Small Firms Should Benefit From Business Bank's New Wholesale Guarantee

The British Business Bank has set up a new Wholesale Guarantee that offers greater protection to banks that lend money to small and medium enterprises (SMEs).

It will launch a pilot stage to test the concept at first, with a maximum of two transactions taking place before the scheme is eventually rolled out to other lenders.

A statement from the organisation read: "Participating banks will benefit from a government-backed portfolio guarantee, to cover a portion of a designated lending portfolio's net credit losses in excess of an agreed 'first loss' threshold, in exchange for a fee."

The first phase of the scheme is open to all UK banks and to foreign multinationals that have branches based in Britain.

To be eligible, firms must demonstrate their desire to lend more money to burgeoning businesses, and lenders that are unsuccessful when applying for inclusion in the pilot phase will be allowed to reapply if and when the system is fully introduced.

Speaking to the Financial Times, Reinald de Monchy, managing director for wholesale solutions at the
Business Bank, commented: "Our aim is to incentivise new SME lending by making it a more capital efficient activity for regulated banks, thereby enhancing its commercial attractiveness."

The British Business Bank was established as an economic development bank that provides the nation's startup organisations with the necessary funds to grow.

Around £3.9 billion is currently available for innovative new ways to make it easier for SMEs to gain access to credit.

The organisation is keen to see greater competition in the business finance sector and hopes that entrepreneurs will have more options when attempting to invest in their enterprise.

Many SMEs found it hard to expand during the financial crisis, as banks tightened their belts, but it seems that lenders are now starting to sanction loans more frequently.

There are also a number of funding initiatives that can help companies that have been refused credit, such as R&D tax credits, although there appears to be a general lack of awareness of these.

Expert Opinion

It is very welcome to see the launch of another new initiative designed to ensure that small businesses are able to get the financial support they need. <br/> <br/>"While so much research has highlighted that many small firms are ambitious about expanding over the coming months, the flipside has been studies suggesting they need more help accessing vital finance to support their plans. <br/> <br/>"An initiative like this is a vital step forward towards ensuring businesses are able to get such help. We would urge start-ups to ensure they carefully consider all of their options in terms of securing funding and also seek legal advice on finalising such agreements. <br/> <br/>"The Business Bank is an exciting initiative and, as a firm based in the city, we are particularly excited that the organisation will be based in Sheffield – with this being a significant boost to the local area." Steven Beahan - Partner