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June 1, 2018updated 20 Jun 2018 9:25am

Barclays provides £500m SME fund, tightens credit underwriting

Barclays has provided £500m to SMEs as part of the Northern Powerhouse scheme, but is tightening its lending criteria in the face of ongoing Brexit uncertainty, according to its chief executive Jes Staley.

By Brian Cantwell

Barclays has provided £500m to SMEs as part of the Northern Powerhouse scheme, but is tightening its lending criteria in the face of ongoing Brexit uncertainty, according to its chief executive Jes Staley.

Under the £500m Northern Powerhouse Growth Fund, Barclays will also be able to offer a range of business lending services to support day-to-day cash flow, expansion and investment for growth, including:

  • Up to £250,000 overdraft without the need for property security for transport and logistics, business services, wholesales and manufacturing companies – secured by debenture and personal guarantees for limited companies.
  • Term lending fee-free up to £25,000 up to the end of December 2018
  • Up to £100,000 lending without the need for tangible security – directors of limited companies will have to sign a short form guarantee for the facility.
  • Cash flow funding to invest in acquisitions and organic business growth
  • Lending and debt support, which can be combined with the Government’s Northern Powerhouse Investment Fund

The Barclays fund is intended for SMEs in the Northern Powerhouse region, including: established businesses with ambitious growth plans, start-ups with high growth potential, companies with early-stage equity funding and businesses focusing on innovation, R&D and technology.

In an interview with the BBC, following the announcement of a £500m SME fund for lending to the UK’s small businesses, Staley said that the bank would tighten its lending criteria.

“We can, at the margin, tighten some of our underwriting standards and credit-writing standards, just to be prudent for the stability of the bank, and we will look at some of our credit exposures and see whether this is proper given the direction of the economy,” he told BBC Business editor Simon Jack.

Consumer and commercial property were inferred as a target of higher loan-to-values.

“If you’re worried about housing prices in London, for instance, do you keep an eye on what is known as the loan to value, what you lend against to what the value of a house [is]?” said Staley.

He added that he saw Brexit as the main reason for the bank’s movement into more risk-aware credit underwriting process.

“One thing you have to consider is the uncertainty brought on by Brexit. I do agree that there is a price for this uncertainty. Right now growth is not as robust in the UK as I think we would all like to see it be.”

Leasing Life analysis

Many of the UK’s lenders and banks have mentioned Brexit uncertainty in their results as a long-term concern, since the referendum in 2016.

But it seems Staley is the first to publically break ranks and link the bearish attitude to the lending of Barclays to the effect that this long-term uncertainty has had on UK economic growth.

While this is prudent from the bank, it is likely to cause ripples in the credit market where confidence is a key factor in credit and lending.

In the background are the uncomfortably high levels of consumer household debt and high house prices in the south of the UK which have driven debt markets.

In the more securitised markets of leasing and asset finance it’s worth noting that Staley has launched a large £500m SME fund by the bank: clearly the underwriters see growth in the north of the UK.

The fund is nominally un-securitised, although that will likely be on a case-by-case basis.

What is perhaps a concern is that a growing number of business lenders and securitised asset finance lenders have started becoming more vocal about tightening credit conditions, like PCF Bank and Secure Trust Bank in their most recent results.

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