The Evolution of Funding for Small Business – by David Harrop

Born in 1970, I grew up in what was very much a Barclays Bank environment. Both my parents worked all their careers for Barclays and our family friends were largely colleagues from the bank or customers of the bank. In the 70s and 80s I saw at first-hand how closely my Dad, Tony Harrop, worked with his customers – seeing the time he spent with them during the week and then further hours in the evenings doing the associated paperwork.

Typically, Dad’s customers were entrepreneurs wanting to grow or take advantage of new opportunities. He helped them structure their funding needs, sometimes agonising over the lending decisions himself or promoting larger credit decisions to his local Directors, all this whilst managing his branch and all the associated HR issues.

At his funeral in 2017 our family were greatly touched by the large turnout from old Barclays staff and a number of former customers who had warm words for Dad and for how much he had helped them over the years. This formative experience of banking was quite different to what I have seen in my near 30-year career in business, the last 14 of which have been spent as a Finance Director of various local SME businesses.

The warning signs for me came at the very outset of my career in 1993 when I joined Deloitte. My parents introduced me to a financial adviser from Barclays who advised me that I needed to take out a Barclays pension, a Barclays income protection policy and a Barclays life assurance product. I think that my monthly disposable income after rent and debt repayments was about £200, and this guy wanted me to spend almost all of that on Barclays products! Completely inappropriate advice – he just saw me as an opportunity to sell bank products.

In my own experience in business, I saw this big bank “product” approach more and more. Rather than a bank manger being able to structure something for his or her clients and then deliver on what they had offered, I have seen the bank manager role be reduced in scope to the point that they have a finite list of standard products, with lending decisions being taken back at base – often over a protracted period.  Not helpful for small business.

The financial crisis in 2007/8 and now more recently COVID have only accelerated this fundamental shift whereby the clearing banks pull away from SMEs. Increased regulation and capital requirements have made it inefficient for the banks to look after small companies. Often an SME client will only be able to access the bank via a call centre, and a decision could take months, leading to a missed opportunity or operational pressures.

Reward Finance Group was launched in 2011 to step into the SME funding gap created by the withdrawal of the clearing banks from this vital part of the economy. As Reward’s Finance Director, over the last 10 years, I have seen us help approaching 1,000 customers, of which the vast majority are small regional businesses.

Despite all the loans we have made, no two deals are the same. Customers get to sit down with an experienced lending professional, explain their requirements and then Reward will set out how we can help. Lending decisions are made locally in our Leeds or Manchester offices, within days of first meeting, and we take pride in delivering the deal we offer the client.

Every borrower with Reward gets a dedicated Relationship Manager who is there to provide further support, funding and advice as required. During the pandemic, we had a number of customers who needed to take payment holidays as they were hit with severe shocks from COVID. We understood these shocks affected all businesses and stood resolutely with our customers, with the Relationship Managers playing a key role in steering Reward borrowers safely through the storm. Treating customers fairly has always been a fundamental principle driving everything we do.

Due to the relationship led approach, flexibility on deal structure and rapid decision-making Reward does charge a premium versus the clearing banks, but the feedback we receive suggests that borrowers accept this premium as the price of having a supportive lender who can deliver quickly and provide them with certainty. I know that as an FD there is a real value to be attached to certainty of funding lines.

Reward is classed as an “alternative” funder, but with a loan book of £100m, funding lines from a listed UK fund, PLC customers and a big 4 auditor I would say that we are increasingly “mainstream” as far as our clients are concerned. I am sure that my Dad would recognise and approve of the Reward approach. During the span of my career I have seen how this crucial role of funding small business has been passed down from the clearing banks to alternative providers such as Reward.