In 2013, British Business Investments received its first application for a block discounting facility.
Although peripherally aware that this product existed, I didn’t know much about what it entailed and how it worked.
Asset finance companies provide funding to smaller businesses which need to acquire equipment that is considered critical for use in their day-to-day business operations. For example, a beautician may need a laser to use in their salon; or a taxi company may want to upgrade to a new fleet of electric vehicles. The business owner can spread the cost of these assets by taking out either a lease or hire purchase contract with the asset finance company. The asset finance company needs money of its own to fund these contracts and that’s where British Business Investments steps in.
As a block discounting funder, British Business Investments purchases batches (known as “blocks”) of the underlying lease and hire purchase contracts from its asset finance company clients (or our ‘delivery partners’, as we call them in British Business Investments), after the funds have been lent to the smaller business. The blocks are then paid back by the delivery partner through monthly installments which includes capital and interest.
In exchange for the funding, the ownership rights to the commercial paper on which the underlying lease and hire purchase contracts are written passes to British Business Investments. But the delivery partner is still responsible for managing the relationship with the smaller business and, most importantly, the performance of each contract. If any of those contracts in a block bought by us goes into a late payment status beyond an agreed number of days, the delivery partner takes that contract back from British Business Investments and provides a performing one in its place.
After that first application, British Business Investments received several further expressions of interest from a number of asset finance providers, all reporting that the availability of wholesale and bank funding capital had at that time become problematically scarce.
This was when British Business Investments began to consider whether block discounting could be used as a mechanism to support the asset finance sector, and in turn, smaller businesses that needed to purchase vital equipment.
The first application, from Shire Leasing, was successful and became our first block discounting delivery partner. We have since agreed block discounting facilities with six other delivery partners – Admiral Leasing and Loans, Compass Business Finance, Haydock Finance, Kingsway Asset Finance, PCF Bank and most recently Liberty Leasing.
Overall, British Business Investments has made block discounting commitments totalling nearly £150m and these have been used to fund the acquisition of a myriad of different equipment types – from dentist chairs to dust carts, livestock to laser printers and liposuction machines to lift platforms. This critical equipment has been acquired by over 20,000 smaller businesses across the whole of the UK, who have benefitted from the capital that British Business Investments is making available to the UK’s smaller business finance market. This, in turn, is helping those smaller businesses prosper and grow, which is fundamental to the core purpose of British Business Investments.
British Business Investments welcomes further block discounting applications from asset finance providers – details of our requirements can be found on the RfP (PDF - 271.41 KB).
Jonathan Marriott is Director of Structured Capital Solutions at British Business Investments. Jonathan joined in June 2013 and specialises in asset finance. He has a wealth of SME lending experience having been employed in banking and finance since 1985. Jonathan previously worked for Yorkshire Bank, Santander plc and more recently RBS Invoice Finance Ltd where he held a Senior Relationship Manager position. Jonathan is an Associate of the Chartered Institute of Bankers.
Read more about Structured Capital Solutions.