Mark Hambly (British Business Bank) Mark Hambly's presentation at the Operational Training Session in Maribor 16/17 April 2015

1. www.british-business-bank.co.uk
@britishbbank
British Business Bank
UK Guarantee Programmes
AECM Operational Training Session
Maribor
16th & 17th April 2015

2. www.british-business-bank.co.uk
@britishbbank
Contents
• Introduction to BBB (Slides 3-5)
• Use of Guarantees in UK (Slides 6-10)
• Links to further information (Slide 11)
2

3. www.british-business-bank.co.uk
@britishbbank
British Business Bank
• Change the
structure of the
finance markets
for smaller
businesses, so
they work more
effectively and
dynamically
• This will help
business prosper
and build
economic activity
in the UK
• PLC since 1st
November 2014.
An Economic
Development
Bank
A plc – 100%
owned by UK
Government
Working with 80
partners – banks,
fund managers,
angel networks,
micro-finance
institutions etc.
3

4. www.british-business-bank.co.uk
@britishbbank
Our model
Start-up
funding
providers
Business
Angels
Asset
Finance
providers
Banks
Venture
Capital
providers
Debt
funds
Trade
Credit
providers
Supply-chain
Finance
providers
Peer-to-peer
Lenders
Private
Sector
Money
Private
Sector
Money
Expertise
Designing solutions to make
finance markets for small
businesses work better
Money
£3bn of public funding
commitments
Invoice
Finance /
Factoring
4
Source: British Business Bank, December 2014

5. www.british-business-bank.co.uk
@britishbbank
Our aims
More Finance
Up to £10bn
Greater Choice
of product and
provider
Better Info
About finance
options
Return for
Taxpayer
Start-up Scale up Stay strong
Resulting in increased business investment,
growth and jobs
5

6. www.british-business-bank.co.uk
@britishbbank
Where do we use Guarantees? - 1
Portfolios of SME Lending (Enterprise Finance Guarantee)
• by banks and other lending institutions (e.g. micro-finance, invoice finance)
• new origination and refinancing (capped at 20% of portfolio)
• term loans, overdrafts, invoice finance facilities
• sound lending proposition but facing decline due to inadequate security
• Lender must apply “Normal Commercial Lending Practice” in all respects,
including with regard to collateral, but “Principal Private Residence” exclusion
• benefit of the guarantee is to the lending institution on a capped shared loss
basis (75% guarantee rate, 20% gross cap) on annual portfolios
• borrowing SME pays a premium/fee and is deemed to have received de
minimis State aid
• provided continuously (although with occasional eligibility and other changes)
in some form since early 1980s
• facilitates approx. 3,000 loans / £300m per annum through 40 institutions
6

7. www.british-business-bank.co.uk
@britishbbank
More on the Enterprise Finance Guarantee
7
• Sovereign Guarantee
• provided by Secretary of State for Business, Innovation & Skills
• to Lending Institution, not Borrower
• financial benefit of the guarantee is to the lending institution on a capped
shared loss basis (75% guarantee rate, 20% gross cap) on annual portfolios
• single indivisible transaction – not separate “guaranteed” and “commercial”
portions
• transactional decision-making devolved to Lending Institution but reported to
BBB on-line and guarantee confirmed immediately
• borrowing SME aware of Guarantee BUT NOT a party to it
• Government as Guarantor is aware of Lending institution’s valuation but has
no direct rights to security held by Lending Institution
• a guarantee, not a form of insurance
• Each Lender determines own treatment for regulatory capital purposes

8. www.british-business-bank.co.uk
@britishbbank
Where do we use Guarantees? - 2
Portfolios of SME Lending (ENABLE)
• by banks
• new origination
• SME lending transaction criteria as agreed with lender
• optimises capital consumption by making new lending less capital intensive
(i.e. counter-balance to regulatory constraints)
• enables originators to grow SME lending and/or expand into more capital-
consumptive market segments
• financial benefit of the guarantee is to the lending institution
• lender pays a premium/fee
• newly launched – first transaction announced with Clydesdale and Yorkshire
Banks in March 2015 and will support £125m of new lending to smaller
businesses, including at least £50m will go to products and industry segments
the bank have not previously covered
8

9. www.british-business-bank.co.uk
@britishbbank
Where do we use Guarantees? - 3
Portfolios of SME Lending (Growth Loans)
• by banks and other lending institutions (e.g. debt funds)
• principally new origination
• term loans, including possibility of deferred repayments and possible up-side
participation (i.e. mezzanine structures)
• focus on sound propositions (£500k-£2m) which are not currently within
lender appetite, generally because of the high cost of due diligence for smaller
deals and the lack of track record for the asset class
• financial benefit of the guarantee is to the lending institution on a capped
shared loss basis
• payment of premium/fee and State aid treatment determined according to
structure of individual lender proposals
• Request for Proposals issued 18th March 2015
9

10. www.british-business-bank.co.uk
@britishbbank
Where do we use Guarantees? - 4
Previous Pilots and Potential New Ideas
Trade Credit Enterprise Finance Guarantee
• Guarantee of credit limits provided to SMEs by major suppliers, primarily in
construction (now closing)
Wholesale Bank to CDFI Guarantee option within Enterprise Finance Guarantee
• Guarantee of bank lending of capital to micro-finance institutions for on-
lending to SMEs to which banks will not generally lend direct
Asset Finance Guarantee
• Potential for a new variant within EFG covering asset finance transactions
Guarantee for ‘Peer to Peer’ Lending
• Early stage thinking – but fundamental question is “Who is the Lender?”
10

11. www.british-business-bank.co.uk
@britishbbank
Links to other BBB Documents
Enterprise Finance Guarantee (EFG) Programme
http://british-business-bank.co.uk/market-failures-and-how-we-address-
them/enterprise-finance-guarantee/
Evaluation of Trade Credit Enterprise Finance Guarantee Pilot
http://british-business-bank.co.uk/performance/evaluations-of-british-business-
bank-programmes/trade-credit-enterprise-finance-guarantee-evaluation-and-
response/
Growth Loans Pilot Programme
http://british-business-bank.co.uk/market-failures-and-how-we-address-
them/growth-loans/
‘ENABLE’ Wholesale Guarantee
http://british-business-bank.co.uk/market-failures-and-how-we-address-
them/wholesale-solutions/
11

12. British Business Bank plc is a public limited company registered in England and
Wales registration number 08616013, registered office at Foundry House, 3
Millsands, Sheffield, S3 8NH. As the holding company of the group operating under
the trading name of British Business Bank, it is a development bank wholly owned by
HM Government and is not authorised or regulated by the Prudential Regulation
Authority (PRA) or the Financial Conduct Authority (FCA). British Business Bank
operates under its own trading name through a number of subsidiaries, one of which
is authorised and regulated by the FCA.
British Business Finance Ltd (registration number 09091928), British Business Bank
Investments Ltd (registration number 09091930) and British Business Financial
Services Ltd (registration number 09174621) are wholly owned subsidiaries of British
Business Bank plc. These companies are all registered in England and Wales, with
their registered office at Foundry House, 3 Millsands, Sheffield, S3 8NH. They are not
authorised or regulated by the PRA or FCA.
Capital for Enterprise Fund Managers Limited is a wholly owned subsidiary of British
Business Bank plc, registered in England and Wales, registration number 06826072,
registered office at Foundry House, 3 Millsands, Sheffield, S3 8NH. It is authorised
and regulated by the FCA (FRN: 496977).
British Business Bank plc and its subsidiary entities are not banking institutions
and do not operate as such.
A complete legal structure chart for British Business Bank plc and its
subsidiaries can be found at www.british-business-bank.co.uk.
BBB 011214 22
www.british-business-bank.co.uk
@britishbbank