Keith Morgan is the executive of the British Business Bank which has £7bn of loans and guarantees £7bn that support over 91,000 new firms.
However, the government’s economic development body is at the mercy of a slowing UK economy, weighed down by prolonged Brexit negotiations, US-China trade tensions and a weak eurozone. All of this has held back business investment.
Last week the British Chambers of Commerce estimated the UK economy grew by 1.3 per cent in 2019, and predicts growth will slow to 1 per cent in 2020 as the economy entered the new year in “stagnation”, amid long-term uncertainty and rising business costs. The Bank of England forecasts UK growth in 2020 will be a modest 1.6 per cent.
Morgan, who leaves after eight years at the helm at the end of the year, is clear about the effect years of stalemate has had on the UK’s 5.9 million small businesses.
“The demand for finance is falling,” a lean Morgan told LearnBonds at the bank’s spacious London offices close to Fleet Street. “There is a growing reluctance for small and medium-sized firms to take on new debt.”
Seventy-three per cent of small firms are “willing to forgo some growth to avoid borrowing”, the Business Bank said in its annual 2019 report, published in July, with just 36 per cent of small businesses using external finance in 2018, a 2 per cent fall from the year before.
However, Morgan says: “Our job is to grow the capacity for lending in the market. Small businesses benefit from more choice.”
The bank, which has its headquarters in Sheffield where it employs 350 staff, does not lend money directly to firms. It instead directs cash to more than 130 partners, including private equity firms, alternative lenders such as Funding Circle and OakNorth, and regional development bodies, who lend directly to small firms.
The bank has notable successes under its belt. It has four firms in its portfolio worth more than $1bn: digital bank Revolut, virtual reality business Improbable, money transfer service Transferwise and artificial intelligence company Graphcore. It has also sold on several firms that hit $1bn valuations, including online estate agent Purple Bricks and online clothing site MatchesFashion.
But despite the bank’s efforts to encourage alternative sources of lending, finance remains sticky. Around 85 per cent of all business lending comes from the big five high street banks – Barclays, HSBC, NatWest, Lloyds and the Royal Bank of Scotland. This figure has changed little in the development bank’s existence.
The next British Business Bank boss, like Morgan, will have their work cut out, running fast to stand still.
LearnBonds news editor Roger Baird said: “There should be no underestimating the work Morgan and his colleagues have put in over the last eight years to expand the range of finance available for the UK’s small firms.
“But a slowing economy has conspired against them, leaving small businesses wary of using any outside finance. Small firms become large firms by borrowing to grow. This is how companies as diverse as Apple and Marks & Spencer started out. There are 5.9 million small and medium-sized firms in Britain, which employ 16.6 million workers, 60 per cent of everyone in private employment. So, the growth of small firms affects us all.”
Read the full interview here: https://learnbonds.com/news/interview-keith-morgan-%e2%80%93-meet-britain%e2%80%99s-small-business-banker/