BBB AR 2020 Banner image Diversify the Market

Our objectives

Diversify the market

To help create a more diverse finance market for smaller businesses, with greater choice of options and providers.

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The challenge for smaller businesses, and why it matters

Appropriate finance should be available to smaller businesses throughout the economic cycle, particularly when supply is scarce. Continuing to widen the range of finance options available to smaller businesses, by supporting increases in the number, type and capabilities of finance providers and platforms, helps to ensure smaller businesses can access finance on terms that best suit their business challenges.

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Background and recent trends

The increase in volume of finance provision in the market since the Bank’s foundation six years ago has been accompanied by increased competition, variety and innovation in small business finance. New providers such as challenger and specialist banks have emerged, accompanying the rise of platforms such as equity crowdfunding and marketplace lenders.

The number of challenger and specialist banks has increased markedly since 2013, with many providing services to SMEs and adding capacity to the market. Between 2013 and 2019 the Prudential Regulation Authority (PRA) granted 46 financial institutions a full or restricted banking licence in the UK.

Around half of those licences have gone to organisations that provide businesses with products and services, with a mix of full-service, digital-only and specialist banks, including micro banks. The range of products and finance provider business models has enriched diversity in SME finance markets.

Independent challenger and specialist banks’ share of the asset finance market has been steadily increasing over time. Innovation in asset finance platforms has also seen the development of online portals and apps designed to help streamline applications and transactions.

In equity finance there is a greater range of fund managers in the market – many of them new or emerging fund managers – representing an enhanced variety of investment approaches, again increasing the likelihood that smaller businesses will find the right funding source for them.

The UK private debt market has also grown substantially since its emergence in 2010 in response to tighter bank lending conditions for businesses, and a low interest rate environment for investors. Private debt funds provide bespoke debt financing solutions, offering businesses an alternative source of funding to banks.

Mainstream bank lending is, however, still the source of most of the finance accessed by smaller businesses, forming roughly two-thirds of the flow of finance in 2019.1 Work remains to be done to ensure that new entrants to the market since the financial crisis of 2008/9 become fully established and reach sustainable scale, as well as enabling the conditions for further diversity. This will not only bolster SME funding choices, but also enhance the resilience of UK smaller business finance markets by spreading the risk of provision across a greater number of providers.

BBB AR 2020 Case study Images e Bate
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Case study

  • Region: East Midlands
  • Location: Leicester
  • Programme: Midlands Engine Investment Fund
BBB Case study map East Midlands

e-Bate, the UK’s first software as a service (SaaS) platform to help companies manage rebate and pricing schemes, secured funding from specialist asset manager Mercia, through the Midlands Engine Investment Fund.

Through their work building bespoke rebate management software, founders Leanne Bonner-Cooke MBE and Colette Wyatt recognised a gap in the market for an affordable off-the-shelf solution. e-Bate is designed for buyers or suppliers which either pay or receive rebates, commissions, bonuses or incentive schemes. The platform allows companies to automate the process, helping to reduce overheads, manage pricing and increase revenue while ensuring compliance.

The funding will allow them to expand their sales and marketing activities and roll out e-Bate to a wider audience, creating new jobs at their office in Leicester.

Responding to the challenges, and 2019/20 snapshot

As well as increasing the volume of early stage equity finance, our Enterprise Capital Funds programme responds to structural challenges in that it broadens and deepens the funding pool by backing emerging fund managers in the market, offsetting the tendency of private investors to prefer deploying money into larger, established funds.

Through our Investment Programme, we supported greater diversity in finance markets by investing in key sectors of alternative provision, outside of large bank lending. This programme’s commitments now stand at £1.2bn (as at end of March 2020), supporting 18 debt funds, eight asset finance companies, six FinTech companies and four challenger banks. These providers in turn have been able to use these funds to support businesses, financing 60,000 smaller and mid-sized businesses to date.

Our ENABLE programmes regularly support challenger and specialist banks in their transactions, including providers such as OakNorth, Hampshire Trust Bank and Funding Circle in 2019/20. In May 2019, we extended the ENABLE Guarantee programme to accept applications from non-bank lenders, including those providing asset finance and asset-based lending, further diversifying the pool of eligible finance providers.

Similarly, we flexed our flagship Enterprise Finance Guarantee programme to offer new product variants, alongside its primary objective of increasing the volume of accessible debt finance in the market. As well as increasing the diversity of finance types available, this also enabled us to increase further the variety of sources of that finance through an ongoing delivery partner accreditation programme in 2019/20.

We now have 140 delivery partners across the Bank, helping to build a diverse finance market that works better for smaller businesses.

2019/20 KPI performance

Our KPI for this objective is ‘percentage of finance we support through non-Big Five banks’ – NatWest Group (formerly RBS), Lloyds Banking Group, Barclays, HSBC UK and Santander. In exceeding our 2019/20 target, we continue to drive forward diversity of finance provision.


91.1% of finance supported through non-Big Five banks, by 31 March 2020


As of 31 March, 92.8% of finance supported through non-Big Five banks

Interim Covid-19 update on Bank activities

In response to the Covid-19 crisis, we initially leveraged our broad network of accredited Enterprise Finance Guarantee lenders. Additionally, we increased rapidly both the number and type of finance providers accredited to the schemes. Across the three Covid-19 debt guarantee schemes, as of 11 August 2020, the total number of unique delivery partners has grown to 105, including FinTech providers, non-bank lenders and asset finance providers. While diverse types of finance and finance providers have been an important part of delivering emergency schemes during the crisis, they will be even more important in the recovery, when the UK’s smaller businesses will still need to be served by a healthy, competitive and diverse finance market.

In line with our countercyclical mandate, the Bank has continued to support a diverse market by maintaining – and enhancing where possible – the diversity and pace of delivery of its existing programmes during the crisis:

  • As of 11 August 2020, our Investment Programme has maintained its activities, completing four transactions totalling £81m since the start of April.
  • We have been able to enhance equity provision through the Angel CoFund (ACF). In April 2020 a further £30m loan was made available to the ACF to enable it to broaden its scope over the next two years as part of the Covid-19 response.
  • Our other national equity programmes have continued to invest to maintain the flow of equity capital to smaller businesses, committing £146m across five funds in 2020/21 so far (as of 11 August 2020), across our Enterprise Capital Funds, British Patient Capital and Managed Funds programmes since the start of April.
  • We have also amended the operation of our programmes to support smaller businesses, ensuring forbearance conditions are applied

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