British Business Bank agrees ENABLE Guarantee transaction of up to £350m with Allica Bank
The British Business Bank has agreed an ENABLE Guarantee transaction of up to £350m with Allica Bank. This is the first ever ENABLE Guarantee transaction with a bank to include a junior investor within the structure, significantly strengthening the programme’s proposition and opening a new channel for private sector investment into UK specialist and challenger banks.
With Sona Asset Management, a UK-based credit asset manager, participating as the junior investor, the structure is designed to free up additional regulatory capital compared with a traditional ENABLE Guarantee transaction, providing Allica with the capacity to support a significantly larger portfolio of asset finance for thousands of established UK businesses.
Over its lifetime, the transaction is expected to support up to £700m in lending by Allica, helping smaller businesses acquire critical equipment, vehicles and machinery to power their expansion.
Allica is a digital bank built especially for established businesses with between 5 and 250 employees. Since obtaining its banking licence in 2019, Allica has lent over £4bn to established UK businesses and raised over £5bn in deposits. A report last year by economic research consultancy Oxford Economics revealed that for every £1m Allica lent to established businesses, it contributed £2.4m in GDP, 35 jobs, and £600,000 in tax revenue.
Under the transaction’s structure, the British Business Bank will guarantee the senior position, while Allica will retain a portion of the credit risk across each underlying agreement.
The ENABLE Guarantees programme is designed to encourage additional lending to smaller businesses. Participating institutions are incentivised by a government-backed guarantee which supports defined portfolios of debt finance in return for a fee.
The programme is open to all UK banks, UK branches of foreign banks, asset finance providers and asset-based finance providers, as well as certain other categories of lenders which lend, or intend to lend, to viable small and medium-sized businesses operating in the UK.
Peter Kyle, secretary of state for business and trade, said: “To grow our economy, firms need the financial firepower to turn their bright ideas into thriving businesses – especially smaller companies looking to expand.
“That’s why this transaction with Allica Bank is so exciting – meeting the huge ambition of the UK’s entrepreneurs by unlocking hundreds of millions in lending.”
Michael Strevens, managing director, Structured Financial Institutions Solutions, British Business Bank, said: “We’re delighted to complete this ENABLE Guarantee transaction with Allica. This transaction provides an innovative new structure aimed at boosting the impact of the programme and demonstrating the value of public–private collaboration in supporting SME finance.
“We hope this transaction can unlock more risk-sharing opportunities for challenger and specialist banks’ lending to UK smaller businesses and act as a template for future transactions. This transaction will also help unlock the potential of smaller businesses and stimulate vital growth in Nations and regions throughout the UK.”
Richard Davies, CEO at Allica Bank, said: “This innovative ENABLE Guarantee transaction is an important milestone for Allica, potentially enabling us to lend up to £700m of additional funding to established UK businesses to support their growth.
“These businesses are Britain’s real economy, and this investment will mean new jobs and boosted economic activity in our communities up and down the country.
“We’re grateful to the British Business Bank and Sona for their support in unlocking this investment.”
John Aylward, founder and CIO of Sona Asset Management, said: “We are delighted to partner with the British Business Bank and Allica on this pioneering ENABLE Guarantee transaction.
“Sona’s participation demonstrates confidence in Allica’s underwriting discipline, and reflects our conviction in the transaction as an attractive risk-adjusted investment opportunity. We see it as a differentiated opportunity to deploy capital into a high-quality, specialist lending platform.
“In addition, our investment reflects the clear alignment of interests within the structure and enables a significant expansion of lending to established UK businesses. If successfully replicated, this model has the potential to create a scalable channel for institutional capital to support the UK real economy over the long term.”
At last year’s Spending Review, capacity of the ENABLE Guarantees programme was increased from £2bn to £5bn, an uplift of £3bn. The increased capacity will enable the Bank to support more finance providers to scale their support to smaller businesses, increasing the supply of finance and supporting the growth of a more diverse smaller business finance market.