The evaluation, undertaken by SQW in collaboration with Beauhurst and covering data until March 2023, has demonstrated that the Debt Funds programme plays a role in a substantial share of the smaller business finance market and that it has been successful at crowding in wider private sector investment into funds.

The evaluation has shown that the Debt Fund programme is improving access to debt finance for smaller businesses across the UK and that is has raised awareness of non-bank finance amongst intermediaries. A survey of investee firms carried out as part of the research shows that Debt Funds-backed investments have accelerated company growth, both in terms of turnover and employment.

The programme has delivered well against its objectives and has made an important contribution to addressing long-standing challenges in the smaller business finance market by increasing the supply and diversity of private debt finance, providing smaller businesses with greater choice.

Adam Kelly, Managing Director and Co-Head of Funds, British Business Bank, said: “It is very encouraging to see that the British Business Bank’s Debt Funds programme has made a positive impact on the UK debt market and finance ecosystem, improving access to finance, boosting UK smaller businesses and creating c. 1,400 additional jobs at the time of evaluation.

“The evaluation also shows the continued need for the programme in a challenging fund-raising market for smaller funds. The British Business Bank will continue to play a key role in this market, further developing the supply and diversity of private debt finance.”

Significant finance additionality at the fund level

The programme has been successful at crowding in wider private sector investment into funds. The evaluation noted that finance additionality is strong at the fund level and that, in the absence of the programme, around half of funds would not have secured other capital, whilst the remainder would have been substantially smaller in scale.

Additionality is still evident even when the Bank has invested in follow-on funds, highlighting the ongoing challenges in fundraising and the need for further support in the sector. The evaluation also suggests that, without the programme, the scale of the private debt market in the UK would be considerably smaller.

Boosting businesses and employment

Debt Funds-backed finance has had a strong and statistically significant impact on turnover and enabled firms to scale up quickly. In absolute terms, this growth in turnover equated to a net impact of £750,000 per company per annum for smaller businesses, and £7.5 million per company per annum for recipients of Venture Debt and Prefequity. Debt Funds-backed finance has helped beneficiaries to create roughly 1,400 net additional jobs in total as the average beneficiary created between three and five new jobs.

Indications of strong returns

While it is too early to fully assess financial performance of the Debt Funds programme, early indications suggest the programme is generating strong returns overall, with an IRR from inception to March 2023 of 7.4%. Over this period, the programme has accrued interest of £114 million and generated £189 million in profit, with a very low write off rate.