Banking veteran Ron Emerson has been changing the way money is lent to the SME sector.
As the former chair of the British Business Bank, the 海角视频 government’s economic development bank aimed at improving access to finance, he helped to mobilise around £7bn of new money for the SME sector and funded more than 40,000 new start-ups in the three years that he was at the helm.
In September, Emerson was appointed the chair of B North, the Manchester-based firm building an SME lending bank for the 海角视频.
B-North is currently in the process of gaining a banking licence and recently announced funding from the Greater Manchester Combined Authority (GMCA) to help Manchester businesses access much needed debt capital quickly and effectively.
Emerson, who has also held roles as a senior banking adviser at the Bank of England, as well as 20 years as a member of the Faculty of Management Studies at Oxford University, says more work is still needed to be done to help SMEs access finance and scale.
And he also believes there are lessons to be learned from the 19th and early 20th century where regional regeneration was led by entrepreneurs working closely with their local banks.
Pointing to research being carried out by fellow Oxford University Professor, Colin Mayer, on Rebuilding Macroeconomics, he said: “Financial services was a key resource for regeneration because banks were set up locally and the financial networks underpinned the growth of its towns and cities.
“But they have all disappeared as the government centralised everything.
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“Britain is unique in this. Germany didn’t do that, the US didn’t do that, yet we centralised everything.
"We need to look more closely at how local banks can help the local economy.”
Currently, there are 5.9m SMEs in the 海角视频 generating around 60% of all employment.
SMEs play a key role in economic growth, job creation, regional and local development and social cohesion.
Yet challenges still remain when it comes to accessing finance to scale a healthy business.
“I think that’s one of the reasons why B-North is an idea of its times,” says Emerson.
B-North plans to open a national network of small business-only banks across England by the end of 2020.
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The start-up bank, which has raised £4.5m in seed funding so far, plans to offer small business loans of anything between £500,000 up to £5m when it opens its doors.
Manchester will be the first B-North office (or “lending pod”) to open next year, followed by offices opening in Yorkshire, the Midlands and London in stage one.
B-North has identified another four locations for stage two.
The lender, which is in the process of getting a banking license, believes there is a gap in the market for an SME lender offering loans higher than the almost-instant debt offered by fintechs and peer-to-peer lenders, while offering faster lending decisions than incumbent high-street banks.
Laying out his passion for SMEs and a backdrop to B-North, Emerson says: “I have a passion for SMEs. We all know SMEs have been the major driver of job growth in the last decade, and I think it’s going to be the critical piece of the 海角视频 economy going forward and there are various reasons for this.
“Firstly, if you look at young people they don’t want to work with big corporations anymore, whether it’s because they don’t trust them or they do not reflect their values. More young people are choosing to set up their own businesses or want to work for a small business where they can sit next to the boss and he or she isn’t on the tenth floor on the other side of the world.
“Becoming an entrepreneur is seen as aspirational and so we’re seeing a demographic shift of interest in people coming up to the world of work.
“SMEs also provide a more stable form for the economy. We all think big companies are doing this, but if you get a giant like Nissan or Honda pull out of a town, the economy disappears.
“With SMEs, you get lots of them so even if you lose a few it still works, the heart of a town isn’t pulled out."
But when it comes to lending, it’s a complex story.
“There’s no doubt the big banks have been much more cautious,” says Emerson.
“With big banks you have consumers and mass market on one end and big corporates on the other end - often SMEs get lost in the middle.
“Due to massive cutbacks at the big banks the customer interface with clients has been lost and alongside that the decision making has been moved to head office.
“The use of a credit scoring system doesn’t work as well for smaller companies because a big part of assessing the risks of smaller firms is not just looking at the balance sheet and accounts but it’s about who is running the business, why they want to borrow money, how they want to expand the business and do they have the capabilities to move the business to the next stage?
“So what you need for SME lending is to put people back into that equation and put people back into the interface.
He continued: “If you take Handelsbanken for example, it has always had a strong bank interface with local delegated authority.
”This means businesses can get a decision straightaway, that’s what we will do, but they have got 200 branches to do that, we’re doing it with technology.
“We want to ultimately provide a faster service and a fit for purpose service for SMEs that’s distinctive.
“Of course there are lots of new players turning up in the marketplace and that’s because we have a market that requires a service that doesn’t really fit with what big banks are set up to do.
“Part of that need isn’t just the money, it’s the service, it’s the understanding of the company and where it’s going.”
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Emerson says there’s a huge SME market B-North can tap into.
While 70% of SMEs often don’t borrow and tend to run on their own funds operating within their own capabilities, there’s quite a lot of those firms borrowing from family and friends or running on overdrafts and credit cards.
“That’s not the basis of long term growth and expansion,” he says.
“We are 13 on the OECD countries for success in scaling up business, we need to get better.”