I read an interesting newspaper article the other day with the headline: “UK bank scandals are making entrepreneurs reluctant borrowers”.
I personally disagree with this view. I think what is making entrepreneurs reluctant borrowers is that the large incumbent banks are unable to adequately address their borrowing needs in the timeframes they require. Entrepreneurs do not want to spend months trying to get a loan from their bank – they want to get back to running their business.
Unfortunately, the large incumbent banks are inherently slow, often leaving the borrower in the dark, so business owners simply get fed up and abandon the process. There is also a tendency from large banks to default to real estate as collateral – an approach that simply isn’t fit for purpose in this age of falling home ownership and new industries – such as tech – where property assets aren’t required.
Banks need to be more flexible when it comes to the structure of loans, offering term and revolving facilities, and the collateral used to secure them by considering stock, debtors, plant and machinery, and intellectual property, as well as real estate.
OakNorth launched in September 2015 offering bespoke business loans of £500,000-25m and since then, our loan book has grown to over £900m. If that isn’t evidence of the appetite among UK businesses to borrow (and therefore scale), I don’t know what is.
However, I do agree with the newspaper journalist’s point that the UK is much better at creating new companies than nurturing the ones that already exist. Why is this? Why is Britain “a nation of shopkeepers” and not a nation of scalers? Simply blaming it on market uncertainty and a lack of business confidence – claiming that business owners don’t want to borrow – seems like a cop-out. We know from our own experiences that there are plenty of businesses that want to scale, but a number of challenging business conditions – rising business rates, the apprenticeship levy, a lack of skilled workers, limited resources to develop the appropriate management skills and a poor funding environment (as explained earlier) – make it inherently difficult.
In recent years, we have seen some brilliant government-backed initiatives launched to tackle Britain’s scale-up issue. One that we’re part of is the British Business Bank’s Help to Grow Programme, which aims to provide debt finance of up to £2m to fast-growth businesses and is targeted at filling the £1bn gap in scale-up lending. In January, we became the first challenger bank to join the scheme and have done several deals under it this year. In his Autumn Statement last year, the chancellor of the exchequer Philip Hammond announced that he would give £400m over the next four years to venture capital funds, specifically to invest in start-ups that want to scale-up. And just this week, Theresa May promised to increase Britain’s research and development spending by £2.3bn to raise the nation’s productivity performance – a key part of which will be helping small businesses scale beyond the 10 employees that keep them small.
So, things are moving in the right direction, but similar to many UK businesses, they’re just plodding along, rather than soaring. We need to be as ambitious in our goal to help scale the UK’s businesses as the entrepreneurs who founded those businesses in the first place.
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