Challenger and digital banks secure new funds to help small businesses

New banks have beaten larger players to secure funding from RBS to help small businesses across the country to grow

Small businesses are to benefit from £300m of funding through UK banks. Starling Bank, Clearbank and Metro Bank have won grants from RBS to fund small businesses.

Starling Bank, the digital bank, has been awarded £100m and pledges to create 398 new jobs in the UK, invest £95 million of its own money and make more than £94.8m of lending available to small business owners.

Metro Bank was awarded £120m in funding and the challenger bank says the funds will be used to help meet the needs of small and medium sized enterprises (SMEs) and inject vibrant competition into the market.

Clearing bank ClearBank has been awarded £60m and in partnership with digital business banking platform Tide says it will use the grant ‘to challenge the oligopoly that currently dominates this marketplace by providing SMEs in the UK with the option of a dedicated and focused banking partner that will help them grow their business.’

The funding comes from a £775m pot comprising the Capability and Innovation Fund (CIF) which holds £425m and a £350m Incentivised Switching Scheme created as a condition on RBS for accepting £45bn bailout during the financial crisis. The awards are made by the Banking Competition Remedies (BCR) the independent body set up to distribute the funds.

Starling says its grant will accelerate its ability to reshape the SME banking market, further invest in proprietary technology and build out its UK-based customer service and support team. It will launch a web portal for SME banking customers later this year.

Anne Boden, founder and chief executive of Starling Bank, said: “Starling will deliver an advanced fully-digital offering that connects SMEs with the financial solutions they need to thrive. This is the opportunity to bring new technology and a new approach to the sector.”

Since launching its mobile banking app in May 2017, Starling has opened 500,000 current accounts including more than 30,000 SME business accounts.

Starling recently announced it had raised £75m of new funding from existing and new investors. It plans to make £913m of balance sheet lending available to SME customers by the end of 2023 and expects to achieve a 6.7% market share within five years.

Metro Bank says the additional funds will allow the bank to radically transform the UK SME banking experience. It plans to open new stores in the North by the end of 2025, including cities such as Manchester, Leeds, Sheffield, and Liverpool. The plan is also to bring forward initiatives to introduce a range of digital capabilities to help SMEs thrive.

Craig Donaldson, chief executive officer at Metro Bank said: “Securing this award from BCR allows us to accelerate our plans to revolutionise banking for SMEs. It will help us bring much needed competition to the underserved SME hotspots in the North, while investing in our digital capabilities and creating new jobs. We already provide tens of thousands of businesses with market-leading service and convenience, and these funds will enable us to introduce new services and products for more SME customers across the country.”

ClearBank and Tide say they plan to match the grant with new investment over the next five years to seize a substantial share of the UK business banking market’.

Charles McManus, group chief executive officer of ClearBank, said: “ClearBank is committed to improving SME outcomes in the UK by leveraging innovative partnerships with leading technology and financial service providers in accordance with our banking as a service model. Our partnership with Tide will provide the SME banking market with an innovative and compelling client proposition, using our highly agile technology.”

Meanwhile NatWest Bank has approved £1.9bn of finance since October 2018 to businesses looking to grow and navigate the current uncertain business climate. NatWest says that the ongoing uncertainty of the Brexit process means that while preparation is difficult companies looking to optimise supply chain and trade financing, and those that will need access to stable term financing, will be best placed to take advantage of new opportunities.

Alison Rose, chief executive officer of commercial and private banking at NatWest, said: “Whilst certain factors in the external landscape still remain unclear, we want to provide as much support and certainty as we can. We have worked with a number of businesses already to develop bespoke finance packages to help navigate what is to come but encourage others to do the same. We are passionate about helping UK businesses tackle whatever the outcome of the Brexit process and want to ensure they can understand what is needed and prosper as a result.”

For further reading: Small business banking: A complete guide

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