40 1GM Monday August 3 2020 | the times
BusinessWorking Life
The Covid-19 pandemic has led to a new focus
on an underserved sector, reports James Hurley
GOING FOR GROWTH
Ready to step into the breach
and lend to small businesses
W
hile serving as
founding chairman of
the state-owned
British Business Bank,
Ron Emerson got
used to hearing sniffy comments about
the notion of the UK having an
economic development agency.
“People said it wasn’t necessary andthat it won’t work.” Then came the
Covid-19 pandemic and a reappraisal
of the agency — indeed, of the idea of
state intervention more generally. “It
did work and I think the government’s
very grateful that it’s there.”
Since the emergence of the virus,
the British Business Bank has
administered schemes that have
provided tens of billions of pounds of
emergency bank loans to companies,
thrusting what had been a relatively
obscure organisation into the
spotlight. Mr Emerson, 73, its
chairman from 2013 to 2016, expects
it to stay there.
“The role of government in
managing economies has changed
dramatically. I think it is going to be a
permanent state of affairs. People
have said the government should stay
out of things; that just isn’t going to
be the way of things going forward. I
don’t think we’ll go back to how
things were.”
Set up to address failings in small
business lending markets, the agency
provides wholesale finance for new
banks and financial technology
companies, underpins equity
investments in start-ups and fast-
growing companies and runs
numerous government programmes
aimed at supporting entrepreneurs.
With structural issues in small
business finance only going to
become more pronounced in the
economic downturn that comes with
and will follow the pandemic, the
British Business Bank is unlikely to be
stepping back into the shadows any
time soon.
Compared with other leading
economies, small business investment
in Britain is more heavily skewed
towards debt than equity. It is also
dominated by a banking oligopoly
that Mr Emerson argues is
increasingly disinterested in backing
smaller companies. In his view, the
centralisation of banking relationship
management and credit systems in
recent decades to reduce costs,
moving staff away from the coalface,
has worked for consumers and large
businesses, but has failed
entrepreneurs: “I was talking to one
of the ex-chairman of one of the
major banks not long ago and he said,
‘You know, this is all our fault. We’ve
spent the last ten or twenty years
deskilling the client interface’.”
Mr Emerson — a former senior
adviser to the Bank of England, who
received a CBE in 2017 for services to
banking and small business finance
— believes that this will be
exacerbated by a “shutting of the
door” to small businesses by big
lenders as the fallout from Covid-19
affects both their loans and their
capital strength.
“Small business lending was already
an orphaned part of the bank. One
bank chairman, who shall remain
nameless, said, ‘Hey, look, if I’m
gonna hold three times as much
capital against [a small or medium-
sized enterprise], as opposed to a
mortgage, which business would you
be in?’ SMEs don’t fit. They fall
between consumers and big corporate
and investment banking.”
Mr Emerson hopes to play his part
in offering a solution with B-North, a
prospective small business lender of
which he is chairman and that is
optimistic about securing a provisional
banking licence within weeks. Its
founders include Jonathan Thompson,a former Santander banker who will be
its chief executive. Initially, it will offer
secured loans of between £500,000
and £5 million. In its first year, Mr
Emerson said, its systems would be
tested under the scrutiny of the
regulator, so lending volume would be
modest, at about £50 million. However,
it hopes to have lent at least £1 billion
within four years.
B-North says that it will offer the
rapid, technology-driven credit
decisions of a financial technology
business — it claims that it will be up
to ten times faster than a traditional
bank — along with a personalised
service long since abandoned by high
street incumbents. “If you ask a bank
for a deal, it will take three to four
months and it could be a ‘no’ and you
have to start again,” Mr Emerson said.
“I’m not sure how they fix that. It’s a
product of legacy structures, both of
systems and physical structures.”
He recalled a senior banker’s
dispirited summary of what happened
when his organisation hired
consultants to try to speed up the
loan application process. “After
months of work, they managed to
shorten it by two weeks. A few
months after they left, it went back to
where it was. It’s not easily fixable and
new players are in a better position to
change the structure.”
B-North, or Bank North when it
secures a banking license, will take a
decentralised approach, placing “core
functions closer to the customer”,Ron Emerson can see green shoots for