BAE’s pension fund has £13bn in assets and 108,000 members
BAE’s pension fund has £13bn in assets and 108,000 members © PA

One of the UK’s biggest pension funds is to lend to small businesses through online platform ThinCats, in a move that could transform the way they are financed.

BAE Systems Pensions on Monday announced a £200m programme with ThinCats, a peer-to-peer lender that targets fast-growing small and medium-sized businesses.

UK SMEs remain far more reliant on bank lending than those in many other developed countries and the government has been encouraging pension funds to provide finance to them.

John Mould, chief executive of ThinCats, said there were signs banks were retrenching, anticipating a financial shock after Britain leaves the EU in March.

“I am worried about the banks pulling back because of Brexit and having money to fund company growth is vital to the UK economy. Pension fund money is long-term patient capital and they won’t be grabbing it back like the banks can,” he said.

Mr Mould said he hoped other pension funds would follow BAE’s lead. They have traditionally favoured assets such as property and corporate bonds. ThinCats offers a higher rate of return at a lower risk than if the fund lends directly, he said.

“We do the due diligence and have the systems to manage risk,” said Mr Mould.

It lends between £100,000 and £15m for terms of three to five years. Interest rates range from 5 to 14 per cent.

ThinCats was established in 2011, after the big banks called in billions in loans and overdrafts from SMEs after the financial crash, sending many into bankruptcy. It receives funding from big institutions and wealthy individuals. It has lent £360m to date and now has £800m to deploy.

Based in Ashby-de-la-Zouch, Leicestershire, it is majority-owned by ESF Capital, which is in turn controlled by BAE’s pension fund, and employs a network of staff across the UK.

“This money will be lent all over the country, we are very regional,” said Mr Mould.

David Adam, chief investment officer of BAE Systems Pensions, said: “Our partnership with ThinCats enables us to invest on behalf of our members in an asset class that offers a highly attractive risk-return profile while also making a contribution to UK SMEs, by providing much needed funding to medium-sized SMEs as key participants in the UK economy.”

The defence company’s pension fund has £13bn in assets and 108,000 members.

The peer-to-peer lending sector continues to grow. Funding Circle, the leading small business loans platform in the UK, on Friday received £1bn from Waterfall Asset Management to lend.

Funding Circle, which has 85,000 individuals as well as institutions as lenders, facilitated £377m of SME loans in the third quarter of the year.

Banks still provide more than 75 per cent of business lending and the banking sector advanced £7bn as a whole to SMEs in the third quarter of 2018. However, SMEs paid back more than they borrowed.

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