We meet at Fang’s Oriental Bakery in the Cathays area of Cardiff whose owner Xiu Fang Li recently launched her first business with a low interest loan from the British Business Bank.
It is just the sort of business that the bank and its chief executive Keith Morgan is mandated to support with low interest bearing debt to a start-up firm where commercial banks rarely venture.
It also chimes with the bank’s focus on supporting more female entrepreneurs and those from different ethnic backgrounds.
The 海角视频 Government-owned but independently run bank was set up by then Secretary of State for Business Innovation and Skills Vince Cable in 2014 in the Tory-Liberal Democrat coalition government.
Its remit, as an economic development bank, is to increase funding to SMEs, seen as the engine room of the 海角视频 economy.
While economic development in Wales is devolved, the activities of the British Business Bank have a 海角视频-wide remit so its funding is available, from debt to equity, to firms in Wales.
Mr Morgan, who will stand down from his role later this year, said: “We are the 海角视频’s economic development bank and operate entirely across the 海角视频. Wales generates around 4% of 海角视频 GDP, but about 5% of our finance is offered and taken across Wales.
“So, our finance provision in Wales is very much in line with the number of businesses in Wales and its share of 海角视频 GDP.”
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There are currently 3,300 companies in Wales who have received finance of close to £328m through the different programmes offered by the bank, which has its head office in Sheffield.
Mr Morgan said: “The sort of finance that we offer covers everything from people who want to start-up, companies which are in significant growth mode so require a lot of equity investment, right the way through to companies that are much more mature and if they cannot get bank funding they can get finance through us.”
The British Business Bank is a wholesale operation, with 130 partners in the marketplace mandated to invest on its behalf, which include banks, leasing companies, venture capitalists and web-based platforms.
They also include Newport-based asset lender Henry Howard Finance.
Equity funding
The bank does though have specific geographic equity funds, including those in Northern Ireland and the North of England, so why not one for Wales?
Mr Morgan: “If you take something like the Northern Ireland fund that was essentially a co-operation between ourselves and the Irish marketplace.
“Invest Northern Ireland were very important in bringing that fund together.
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“We operate a number of regional funds, including those in the North of England, the Midlands and the South West.
“The funding that operates in Wales is operating through the Development Bank of Wales.
“In Northern Ireland they have agreed to take some of that devolved money and work in partnership with us.
“We are well covered across Wales, but we are open to working with a range of different people in the marketplace and if there was someone, specifically in Wales, we would be very open to that conversation, but at the moment we have good coverage across Wales with more than 5% of our finance going to Wales which is disproportionately more than you would expect.”
What of the argument that as economic development is devolved then a specific Welsh equivalent of the British Business Bank should be established where decisions on investment criteria and companies running funds would be made in Wales?
Mr Morgan said: “At the moment I think there is good collaboration between ourselves and the Development Bank of Wales.
“The development bank is using devolved funding to deliver its business.
“We have got a mandate to operate across the entirety of the 海角视频, so what Wales is choosing to do is add additional funding through the Development Bank of Wales for benefit of Welsh SMEs.
“In England we run some of the regional funds that originated from European money and in Wales the development bank runs those regional funds with originating European money.”
The EU has part funded the Development Bank of Wales', Wales Business Fund.
Mr Morgan added: “Our objective across the entirety of the 海角视频 is to create conditions in which SMEs can get access to finance.
“Some of that requires us to draw on large-scale sources of funding so we are very keen to bring institutional funding into this marketplace.
“So, if you want a very lively and vibrant market, and you have got firms that need that growth finance, then we are trying to get institutional funds both 海角视频 and international into this marketplace.
“There is a role there for the 海角视频 to play, whether in England, Wales, Scotland or Northern Ireland, because this is an international marketplace and it is important that we have good private sector funding working alongside government funding to deliver the growth finance that the most innovative companies need.”
Ownership and growth finance
On the perception that in Wales there is a higher percentage of SMEs, particularly owner-managed firms, unwilling to seek to equity growth finance, because of not wanting to give up control, Mr Morgan, said: “Wales has got its fair share of high growth businesses at around 4%, which is very much in line with what you would expect with regards to its business population.
“It has roughly 4% of deals, but only 1% of value, which means it is the smaller equity deals which are being done and the bigger ones are not.
“That sort of imbalance we find in a number of different regions and devolved nations across the 海角视频. On the other side of that coin you have London and the South east which gets more than its fair share of equity. So, what you have got to look at, is what is the difference.
“And I think the difference you have got is in terms of the small business view on equity and understanding of the options they have got, as well as potentially the supply of finance in the marketplace.
“On the first of those I think what you have is people who have less information available to them.
“So, if you are operating in London, the South east or Oxford or Cambridge, there are a lots of people around you who are talking about opportunities to grow and how to get finance.
“There are venture capitalists and there are corporate finance advisors, consultants and all this sort of thing, but if you go outside these centres you find less of it.
“So, what you want to do, is try and develop a whole way of working and information that is better.
“We have got what we call the finance hub, which is an online resource for small companies across the 海角视频.
“It provides people with information on the options for growing their business, where they can get growth finance from and things like what is different between angel and venture capital finance and whether they could get finance with a loan from their bank.
“We have got a stream of people coming onto this online resource and reporting back that they are getting good value out of it.”
On the bank’s future investment plans Mr Morgan said: “We have available over the next 10 years £3.5bn of funding and there is a significant amount available to be pushed into equity.
“What we want to do is work with people. We work with organisations that want set up private equity funds.
“We have a whole pipeline of people who want to talk to us. And we have got good examples of where Welsh firms have benefitted from increased equity.
“Medical and life sciences are very strong in Wales and we have been a big supporter of that sector. One of the businesses that we have been investing in is Creo Medical.
“We have put early stage funding in that business and it is now worth more than £250m.
“That is a situation of our 海角视频 wide programmes having identified a need in a sector in which Wales is very strong which has led to significant growth.”
Angel investment
The bank recently launched an initiative to help more angel groups outside of the south east and London. Mr Morgan said: “We have allocated a £100m to that. We are very much in the business of talking to angel groups anywhere in the country, including those in Wales, and how we could bring our money to help them scale up their efforts and therefore invest more in high growth companies.
“So, that is an example of where we have a dedicated regional focus around building regional angel groups.
“What we would like to see from all the regions and devolved nations of the 海角视频 is interest coming from those groups to help us make that money available.”
As an economic development bank, its primary focused is having an impact on the economy and not making a return, as is the case among private sector lenders.
Mr Morgan said: “We do make a return for the taxpayer, but we are targeted to make a return which is in line with the cost of the government debt that has to be raised for our funding.
“You wouldn’t expect us to earn a rate of return in line with a commercial operation, otherwise why would we doing what we are doing?”
Start-ups
Since its Start Up Loans programme has been operating Mr Morgan said that 60,000 loans have been offered with more than £500m of finance taken up.
It provides loans up to £25,000 with a fixed interest rate of 6% a year.
Mr Morgan said: “What would happen is a normal bank would never offer that loan as for them there is too much risk in it.
“But when we get to offer that loan we see successes like Xiu’s bakery here in Wales.
“They go onto invest and recruit people and create growth in the local community. It is a clear example where we are not operating with a purely commercial focus in mind.”
The bank is actively working to support and encourage more female entrepreneurs.
Mr Morgan said: “In a perfect world we would have lots more female entrepreneurs, but the truth is we don’t – 18% of entrepreneurs are women which is far too low.
“So when we do Start Up Loans, we find, because we have got partners like Business Focus in Wales, 40% of our loans go to women. People from an Asian, black or ethnic minority background see around 22% of Start Up Loans going to them, while 35% of people who have received funding have been unemployed.
“So, it builds a really diverse section of people who wouldn’t get the opportunity to start their own business otherwise.
“We are taking a lot of risk [Start Up Loans] and there are some that don’t succeed, but for even those it gives people experience of being an entrepreneur and they go on to do some very interesting things afterwards.”
Last year the British Business Bank appointed Steve Conibear to a new position as senior manager, 海角视频 networks, for Wales.
The network is part of the bank’s new demand development unit, which has been specifically created to raise its profile and relationship with smaller businesses across the 海角视频.
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