It’s been fantastic working with BankNorth on their latest investment opportunity. A new startup challenger bank focused specifically on the SME lending market, the interest into the opportunity from sophisticated, high net worth individuals and institutional investors has been considerable.
If you are signed up to receive our investment-based emails, you may have seen that Tranche 1 of the opportunity is coming to a close over the coming few days.
However, there’s still time to get involved if the opportunity is one you’d like to enhance and diversify your portfolio with.
As with any investment, it’s critical you carry out your own due diligence before investing, but to support we’ve pulled out six of the key facts about the exciting BankNorth investment opportunity.
1. The project is led by an extremely experienced team steeped in business banking
BankNorth is the brainchild of a group of senior banking specialists who have experienced first-hand the structural and cultural weaknesses in the SME banking marketplace here in the UK.
Through their numerous years in the sector, the team have identified serious challenges in the business lending process within the established banks and have set out to tackle these challenges head on by proposing a clear, differentiated approach.
The founding team comprises of seven highly experienced banking and financial services professionals. They have an extensive track record spanning business banking, retail banking, regulation, risk and compliance, business development, customer service, credit risk and underwriting, finance, technology and IT security, and outsourcing.
With scale-up experience of building commercial lending operations for both challenger and established banks, arguably most importantly, the team have direct experience of working closely with the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) to obtain banking licenses to successfully build and scale start up challenger banks.
2. The focus of BankNorth is to provide greater financial support to an existing, clearly underserved market
BankNorth’s strategy is not to create a new market but to serve the existing market more effectively.
The purpose isn’t to reinvent the wheel. They aren’t creating a new segment in which they plan to thrive. Instead, the serious challenges they’ve identified all exist within the established SME lending marketplace.
For example, loans to business by banks as a proportion of their domestic lending have declined from 31 percent in 1988 to just 8 percent in 2016, even though we’re seeing record-breaking numbers of private companies in the UK (at the start of 2017 we had 5.7 million, the most we’ve ever had).
Similarly, there are numerous sets of data that show the struggles SMEs are having accessing the finance they need to grow. Just this year Caroline Binham reported on FT.com that “small and medium-sized enterprises (SME) are finding it tougher than ever to take out loans”.
The market for business and commercial loans is substantial, and the challenges BankNorth have identified within it are to be tackled head on - they are targeting a £2.3bn loan book by year 7 post launch, which equates to a market share of 2%.
3. The BankNorth offering is about providing custom, tailored solutions
One of the most important points to understand about BankNorth is they are driven to offer banking solutions to SMEs that break the ‘one size fits all’ mould so often seen at present.
Credit underwriters will be empowered to make decisions and step outside policy for the right deals. The credit underwriters will have had experience in careers outside of underwriting, so they have a true understanding of business and can make decisions
Similarly, the planned minimum amount BankNorth is aiming to loan is £500,000. However, there’s a clear caveat that less may be made available on exception. It’s all about understanding the SME’s specific requirements at the time, rather than whether they fit into a pre-defined box.
This is something that simply isn’t found in most other SME bank lending offerings today.
4. The forecast returns are 20.63x money-on-money investment
Investors into the opportunity at this stage have the potential to realise a 20.63x money-on-money return, based on an EBITDA of £60m and an exit multiple of 15x at seven years post-launch.
Being the targeted base case return, the upside case increases to 25.79% based on an EBITA of £75m and the same 15x exit multiple. With the proposed minimum investment £25,000, if the base case figures are achieved, this would result in a gross return of £515,750.
NB: investing in early stage companies is a higher risk / higher return strategy. Returns aren’t guaranteed and your capital is at risk.
5. It’s a medium term investment opportunity
The BankNorth team are anticipating an IPO at year seven, post launch, with multiple additional funding rounds in between.
Sitting comfortably within the medium term investment bracket, whilst potential returns are targeted within the foreseeable future, investors should be comfortable having their finances tied up for this full period.
6. BankNorth are set to make a genuine impact
We’ve talked about impact investing a lot in recent times, and touched on how many people believe the traditional definition is still the only one - investing into companies who have an obvious impact to the world around us, such as by providing clean or renewable energy solutions.
But impact investing today stretches far beyond this, and BankNorth are a great example of one company set to make a genuine impact.
SMEs are the backbone of the UK economy. We need to support them; to help them grow and to thrive. When we do this, we help create jobs. This alone has an impact in a variety of ways, from a high level way of reducing UK unemployment levels through to boosting the local economy by providing more individuals with greater spending power.
It may not be in the traditional sense, but you can undoubtedly become an impact investor by making a pledge into BankNorth.
Poised to revolutionise the SME lending sector, Tranche 1 of the BankNorth investment opportunity is due to close in the coming days. If you wish to find out more and/or subscribe for shares in this round, you can:
- View the investment memorandum here
- Reserve your shares here
- Contact me directly with any questions you may have on 07581296570 or via email at email@example.com
As with any investment, returns aren’t guaranteed and your capital is at risk.