Castle Trust launches Covid Level 3 Criteria

Castle Trust Bank has launched new criteria to reflect that the government’s Covid Alert Level has been reduced to Level 3.

With the Alert Level currently at 3, Castle Trust has expanded its criteria to include bridge-to-let and first-time landlords. The bank is currently lending on buy-to-let assets only, up to a maximum LTV of 75% and a maximum asset value of £4m. The minimum term for loans is 3 years, although there is the option for an ERC period of just 2 years, and rates start at 4.99% as they did before the pandemic.

As with many lenders, Castle Trust took the decision to manage its risk appetite during lockdown, but now as restrictions are being lifted, the lender is re-introducing criteria to meet the demand from brokers. The bank will continue to investigate new opportunities to expand its offering as and when the Covid Alert Level falls in the future.

Last week, Castle Trust announced that it had officially become a bank following formal approval of its banking licence and that it plans to significantly grow its specialist lending as the market emerges from Covid-19.

Barry Searle, managing director of mortgages at Castle Trust, says: “I have a lot of sympathy for brokers in the current environment as so many lenders are vague about what they will and won’t lend on throughout this uncertain period. We want to be very clear and open about our lending appetite so that brokers know exactly where they stand and can submit an application to Castle Trust in confidence.

“We will continue to review our offering to ensure that we are meeting broker demand in a way that is responsible and appropriate for the environment and we’ll clearly communicate any changes so that brokers can advise their clients with greater certainty. It’s nothing flashy, but we think it’s a sensible approach to communicating and lending that will help brokers navigate what is still a very difficult situation.”

UK Future Fund extended to UK companies from accelerator programmes outside the UK

The chancellor of the exchequer today announced that the Future Fund is being expanded to accommodate businesses that contribute significantly to the UK economy, but do not have their parent company based in the UK because they participated in a non-UK based accelerator programme.

Accelerators are open and competitive programmes which are designed to select and foster the stars of tomorrow. They are selective, have a fixed-term and are a cohort-based programme for early stage companies, offering access to industry mentorship, seed or venture capital and other professional support. Part of the conditions of joining some accelerator programmes outside of the UK is that the businesses are required to create a non-UK incorporated parent company.

These changes to eligibility will allow a wider number of suitable companies to apply, while maintaining scheme protections against fraud and abuse and ensuring that the Future Fund continues to support economic activity in the UK.

Eligibility criteria
A non-UK ultimate parent company of a corporate group which participated in an Accelerator Programme on or before 19 April 2020 may be eligible for the Future Fund, provided that the company has satisfied the following:

• the Company must have raised at least £250,000 in equity from third-party investors in previous funding rounds in the last five years (from 1 April 2015 to 19 April 2020, inclusive);
• if the Company is a member of a corporate group, it must be the ultimate parent company;
• the Company is the equivalent of a UK limited company in the relevant non-UK jurisdiction;
• the Company does not have any of its shares or other securities listed on a regulated market, a multilateral trading facility, a recognised investment exchange and/or any other similar market, stock exchange or listing venue
• it participated in an Accelerator Programme, on or before 19 April 2020, and participation in the Accelerator mandated incorporation of the ultimate parent company in a non-UK jurisdiction;
• if the Group (or any entity within the Group) was in existence before the Company was incorporated, the ultimate parent company of the Group (or the sole entity, if applicable) must have been incorporated in the UK;

the Company is the ultimate parent company of a Group which has:
− half or more of its employees based in the UK; or
− half or more of its revenues from UK sales;

• it is the ultimate parent company of a group which contains at least one subsidiary operating company incorporated in the UK on or before 31 December 2019; and
• the Company received investment from the Accelerator Programme on or before 19 April 2020.

The Future Fund, which was developed by government and delivered by the British Business Bank launched in May and will initially be open until the end of September. As at 28 June, the Future Fund has approved over £320.6m of convertible loans to 322 innovative businesses across the UK.

Operating on a commercial basis, the Future Fund unlocks additional third-party investment on a match funded basis, creating a bridge to the next equity funding round for innovative companies with good potential. Initially, £250m was made available by the government for investment through the scheme, to be matched by private investors, with the Treasury making clear the amount could be increased if needed. Due to the popularity of the Fund, more funding is being made available. The scale of the scheme will be kept under review.

To protect the use of public funds, all applications will be assessed against UK government investment standards on specific jurisdictions by reference to factors such as sanctions, tax transparency, and the cost and complexity of implementation. The government will also take into account concerns around the proper use of public finances and wider public policy risks, as well as whether investment would undermine the integrity or public credibility of the Future Fund.

All investment funds being matched need to be in pounds sterling and all payments will be made in pounds sterling.

This technical extension to the Future Fund may mean that for these new companies applying, the assessment of an application involving a non-UK parent company may take additional time to complete due to the need to assess and review documentation received, additional checks that may need to be undertaken and the need to assess information from parties in other jurisdictions.

Allica Bank launches 95-day notice account for British businesses

Allica Bank – the business bank that seeks to empower small and medium sized businesses – has today announced the launch of a 95-day notice account for business savers, further extending its range of financial products designed to support businesses. The new account will offer a variable rate of interest, which currently sits at 1.00% AER.

Accounts can be opened online with a minimum deposit of £1,000 and a limit of £250,000. They will also be protected by the Financial Services Compensation Scheme on up to £85,000. Businesses can then manage their account through the bank’s internet banking platform and secure messaging service.

The new business notice account comes just weeks after the bank launched 12-month and 24-month fixed-term deposit accounts for personal savers and small businesses. These are the latest in a suite of new products that are set to be launched by Allica Bank in 2020.

Lawrence Holland, Head of Deposits, Allica Bank, said:

“When designing and building products at Allica Bank, the needs of small businesses are always our top priority. With the global pandemic having created a period of almost unrivalled uncertainty, we understand that businesses need a way to earn a meaningful return on their cash, without having to commit to the standard terms that accompany such rates.

“That’s why Allica Bank is proud to offer this 95-day notice account. After all, when businesses are navigating hurdles day-by-day or week-by-week, they do not want to have all their funds constrained to year-by-year.”

Mark Stephens, CEO of Allica Bank, said:
“These are challenging times for British businesses and it is our ambition to support them through these choppy waters as best we can. Allica Bank will continue to develop our suite of products for small and medium-sized business, coupled with providing local knowledge and industry expertise to deliver what businesses need.

“In times like these, that means flexibility and value. Through this 95-day notice account, we believe we are achieving exactly that.”

Investment in smaller UK tech businesses increased 27% to £4.0bn last year

Equity investment in the UK’s tech businesses increased by 27% in 2019 to £4.0bn, the highest amount since the series began in 2011, reveals the British Business Bank’s annual Small Business Equity Tracker report, published today. The UK’s thriving tech sector remains highly attractive to equity investors, accounting for 47% of total equity investment in UK SMEs through 691 deals in 2019.

Within tech, the sectors receiving the largest share of deals were software (425 deals worth £2bn) and life sciences (78 deals worth £540m). The verticals attracting the greatest amount of equity investment in 2019 were Software as a Service (471 deals worth £2.5bn), fintechech (193 deals worth £1.8bn) and AI (173 deals worth £880m). Software as a Service companies in particular were highly attractive to equity investors, with investment value increasing by 69% in 2019 compared to 2018, a much larger increase than that seen in the overall market.

The Small Business Equity Tracker report, which analyses Beauhurst data on equity investments throughout the UK in 2019, provides an important benchmark of the market immediately prior to the Covid-19 pandemic. It shows the value of total equity investment in the UK’s smaller businesses rising 24% to £8.5bn in 2019 – the highest amount recorded – and a record number of deals, rising 4% to 1,832 with deal sizes up by 21%.

52% of deals by number took place outside of London, with South West, Scotland and Northern Ireland showing a strong increase by deal number in 2019, rising by 34%, 26% and 24% respectively. Several regions also saw investment levels by value increase strongly in 2019, including Northern Ireland (191%), Scotland (51%), North West (50%), London (37%), West Midlands (36%), and the South East (27%).

The growth stage engine
Equity investments into growth stage companies rose by 39% to £5.3bn. The average growth stage deal size, where the UK has lagged behind the US, also grew by 27% driven by a small number of very large deals. Such financing is important as it is often used to help international expansion and to enter new markets, demonstrating both the increasing strength and maturity of private UK SME equity markets and the broader potential of later-stage private companies.

Keith Morgan, CEO, British Business Bank, said: “The UK’s small business equity finance market saw a record year in 2019 with investment amounts soaring to £8.5bn. This was a clear sign of investor confidence in UK smaller businesses located across the country and their potential for growth as well as the strong fundamentals of the UK economy as a place to start and grow a business.”

“The British Business Bank’s equity programmes are estimated to have supported around 11% of all equity deals in UK SMEs in 2019. As the economic impact of Covid-19 continues to affect businesses across the country, the work of the Bank has never been more important. Ensuring a wide range of innovative and ambitious smaller businesses continue to have access to equity investment to support their growth plans will be essential to the UK retaining its world-leading position in science, innovation and technology.”

Emerging signs of market changes before Covid-19
Despite a record year for fundraising overall, signals of a softening in private UK small business equity markets were apparent prior to the impact of Covid-19.

The amount of investment into seed stage companies declined by 1% in 2019. While the scale of this decline is small, it is set against seed stage investment increasing every year since 2011. This decline, combined with the number of companies raising follow-on funding in 2019 being higher than the number of companies raising finance for the first time, has the potential to impact on the future UK equity pipeline.

Investors also appeared to be exercising more caution in 2019, particularly towards some growth stage companies where average pre-money valuations fell compared to 2018. There was an increase in the proportion of equity ‘down rounds’ in 2019, with down rounds forming 12% of all deals in 2019, compared to 9% in 2018.

Unsurprisingly the Covid-19 outbreak is expected to have an impact on smaller businesses’ ability to raise equity finance. The Bank’s analysis of Beauhurst data showed that 43% of all UK equity backed companies are at least moderately affected by changes in delivery and demand for their products and services.

Alice Hu Wagner, managing director, strategy economics and business development, British Business Bank said: “The British Business Bank’s Small Business Equity Tracker report illustrates a strong interest in growth stage investment in the equity market in 2019, with a particular focus on tech businesses. Ensuring our high-potential later stage companies have the capital they need to compete on the global stage will be crucial to powering the economic recovery.”

The British Business Bank Effect
British Business Bank programmes are estimated to have supported 11% of UK equity deals between 2017 and 2019, compared to 9% between 2016 and 2018 as reported in last year’s report. The increase in market coverage is due to British Patient Capital fund activity, which has grown considerably over the same period.

Seed and venture stage deals supported by the Bank are generally smaller than the wider market, while growth stage deals tend to be larger, showing the Bank’s programmes are tackling market gaps at both ends of the UK SME equity spectrum.

The commercialisation and growth of the UK’s science-based companies, crucial for building the future economy, is well supported by the Bank’s equity programmes – 50% of our deals between 2017 and 2019 went to technology/IP-based businesses.

Addressing regional imbalances remains core to all British Business Bank activity, with two funds in particular specifically targeting underserved regions. The Northern Powerhouse Investment Fund and Midlands Engine Investment Fund (MEIF) contributed to 16% and 19% of deals in their respective areas.