Bank that’s reaching out to small firms

EARLIER this year, an electoral tidal wave swept away former Business Secretary Vince Cable, along with most of his Lib Dem colleagues.

However, one of his most cherished innovations lives on, and it’s helping to create jobs in Yorkshire.

Mr Cable, who lost his seat in the General Election, launched the Government-backed British Business Bank, in 2012, to improve lending to small and medium-sized enterprises, at a time when many small firms were complaining about getting a cold shoulder from the big banks. Since then, the bank’s investment in finance providers has helped smaller companies across the UK access £1.8bn in funding.

Headquartered in Sheffield, the bank has an essentially simple mission – to increase the supply of finance available to smaller businesses. The bank provides funds to finance providers, who then lend directly to SMEs.

The bank devolves responsibility for choosing its investments to private-sector expertise. For example, investments made by the Angel CoFund are made by the Angel CoFund’s Investment Committee, made up of 14 independent, experienced angel investors with entrepreneurial or institutional investment backgrounds. One of the businesses to benefit from the bank’s backing is food producer Heck, which is based in Bedale. The family-owned sausage brand, which was launched in 2013, received £1m from Panoramic Growth Equity in exchange for 25 per cent of the business in May 2014.

Since the investment, turnover has more than doubled, and the company is expected to record revenue of around £6m at its year end. The £1m was awarded from Panoramic’s £34m fund, £20m of which was provided by the British Business Bank. Andrew Keeble, managing director of Heck, said the cash has allowed the business to invest heavily in its brand.

Keith Morgan, the British Business Bank’s CEO, would love to see more of these transactions. Mr Morgan was one of the architects of the British Business Bank programme. He has a powerful affinity with Yorkshire.

Mr Morgan spent three years at UK Financial Investments as the head of wholly-owned investments, where he managed the shareholdings in Bradford & Bingley, Northern Rock and Northern Rock Asset Management following their bail-out by the taxpayer.

Between 2004 and 2009 Mr Morgan held senior executive roles with Banco Santander Group. He was behind the development of retail and SME strategy in its US business, and he also served as director of planning and strategy at Abbey National in the UK. Before that, he worked at LEK Consulting for 18 years, specialising in financial services.

“Our role is all about providing finance for smaller businesses to create the opportunity for growth,’’ he told me. “We have a marketplace that is heavily dominated by some big banks, and we identify the areas in the market where companies can’t get the finance they might need.

“We decided it was important to work through the market place and not set ourselves up in competition. If we use partners in the market, we can maximise our reach and gain leverage from their knowledge. The partners can identify small businesses who might need anything between £5,000 and £5m to set up or grow.

“You can have businesses that start up with just one person and 18 months later they employ more than 10 people. It’s important to support companies with innovative ideas that can be commercialised and begin to grow. We work through the banks as well to offer more lending than would otherwise have been there.”

An economist by training, Mr Morgan has an annual base salary of £299,000. He joined UKFI because he wanted to do something “with more of a social purpose” following the financial crisis. He had to help mop up part of the mess left by the chaotic events of 2007 and 2008.

For three years, he worked to return Northern Rock to the private sector and to create UK Asset Resolution, based in Bingley, West Yorkshire, which manages the remaining mortgages still funded by the Government.

“The small business sector is an important engine of growth,’’ he said. “If small businesses succeed, the economy will succeed and the country will prosper. If we want to solve the productivity challenge, we should focus on small business. We created a single business resource as a way of increasing the likelihood that smaller businesses will get the finance that they need.

“We want to be sure that the work we do truly increases choice and diversity.” Mr Morgan acknowledges that financial institutions are always engaged in risk, and some investments will be spectacularly successful and others won’t.

He added: “It’s important to have the commercially minded capability.”

Although it also has a London base, most of the Bank’s board meetings are held in Sheffield, and it is looking to hire more people in South Yorkshire.

“We have created an organisation that’s not staffed with civil servants. It’s very important to us that we’re not seen as a South East or London-based organisation. So much of our work is out in the regions. There are talented people working in Sheffield, and we want to build on that capability and presence.

“We’ve got 110 staff in the company, with half in London and half in Sheffield. We’re actively looking for people at the moment in Sheffield. There’s a very important job to do; to ensure Government’s financial services for smaller businesses are delivered effectively across boundaries to the private sector.”

Title: CEO of British Business Bank

Date of birth: December 2, 1963

Education: Barrow Grammar School, University College Oxford, Harvard Business School

First job: Associate, LEK Consulting

Last book read: Bring up the Bodies, Hilary Mantel

Favourite film: The Italian Job

Car driven: Volvo

Favourite song: With or Without You by U2

What is the thing you are most proud of? My two daughters

Favourite holiday destination: Patmos Island, Greece