Challenger bank OakNorth scoops £30m from British Business Bank

By Ryan Weeks on Thursday 12 January 2017

Alternative LendingDigital Banking

OakNorth becomes first challenger bank to partner with British Business Bank on help to grow scheme.

OakNorth, which secured the third new UK banking licence for 150 years in 2015, has clinched £30m in funding under the government’s help to grow scheme.

The scheme was conceived to boost lending to small businesses for amounts between £500k and £2m, which has been identified as a problem zone for firms. The first £30m chunk of help to grow money went to Lloyds Banking Group. The scheme is expected to deliver support of up to £1bn of lending to fast-growth businesses by 2020.

Delivery partners have two options for partnering with the British Business Bank to deliver the funds. The first is a shared first loss guarantee, which acts as an incentive for lenders that have the money and know-how to play in the £500k-£2m segment, but consider it less appealing that other lending opportunities. The second involves the British Business Bank providing capital for co-investment alongside a fund’s other investors, which simply serves as a means to bolster the reserves of a lender that is keen to take on the £500k-£2m space, but lacks the capital.

The £30m that will be channeled through OakNorth will be used as a shared first loss guarantee. The funding will be made available to businesses across all sectors, but those within the manufacturing, creative and technology industries are likely to benefit most.

“One of the key challenges facing entrepreneurs and business owners in the UK is securing debt finance, especially once they’ve moved beyond the start-up phase and are making a profit and looking to grow,” said Rishi Khosla, CEO and co-founder of OakNorth. “This is an opportunity to change that and ensure that entrepreneurs are able to secure growth capital throughout every phase of the business journey.”

OakNorth's typical loan size ranges between £1m and £20m. The challenger bank has lent around £300m since launching in September 2015, and expects to write another £500m in loans in 2017. OakNorth has seen its loanbook triple in size since the Brexit vote as a direct result of bank retrenchment, and last week announced three new hires in anticipation of heightened demand in the year ahead.

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