By: Neil Evans, Head of Credit Risk at OakNorth Bank
In late 2014, I was a few months away from completing my 34th year at RBS – the institution where I’d spent most of my career. I had been the Head of Credit Policies for almost four years by that point and had seen the bank through some of its very best years and some of its very worst. I can’t say that I had any particular desire to leave – I had a secure role at an institution that had been around since the 18th Century, colleagues who over the years had become close friends, and with the business on the mend both financially and reputationally following its bailout from the 2008 financial crisis, there was plenty to look forward to.
So, when I met entrepreneurs, Rishi Khosla and Joel Perlman, I was more surprised than anyone to feel a sudden itch in my feet. Neither of them were bankers. In fact, they’d never even worked for a bank, yet here they were explaining to me how they planned to apply for a banking license and shake up the SME lending market. They had only just sold the last company they’d built together to Moody’s Corporation for a hefty chunk of change, so I was both impressed and intimidated by their desire to jump straight back on the treadmill and start again. Most people in their shoes would take the opportunity to have a few years out – maybe write a book about their experience, work the conference circuit, and eventually take on some NED roles or a Principal position at a VC firm. But not Rishi and Joel – both still in their late 30s at the time, they said they were “just getting started” and wanted to redefine business borrowing.
They were inspired to launch OakNorth following the negative experience they’d had in trying to secure debt finance to scale their previous business. They’d launched it in 2002 and four years in, were profitable, had strong cash flow, and a great list of clients, so were looking for debt finance to scale. They went to their clearing bank – a British high-street lender – and were told that they could only get a loan if they had property to provide as security. As the person who was often on the other side of this conversation, it was one I was familiar with. I’d watched hundreds of entrepreneurs over the years put growth plans on hold because they didn’t have property to provide, and for those who did, they still had to endure months of waiting for the mysterious “Credit Committee” to give them an answer (even if it was a “no”), and often with limited contact from their relationship manager. If they succeeded in being approved for a loan, it was an off-the-shelf product that wasn’t structured to the unique needs of their business.
This was SME lending as I knew it, but Rishi and Joel wanted to create a better borrowing experience: one where the business gets quick yes or no decisions, is kept up to date throughout the process, and can see that the lender understands their business and is willing to take the time to design a bespoke facility for them. This is what businesses get from OakNorth – indicative terms are typically sent within 48 hours of the initial conversation, and entire transactions are completed in three weeks on average. Every business is invited to Credit Committee to discuss their borrowing needs directly with the decision makers which for me, is one of the best parts of my role. Every week, I meet and hear from entrepreneurs and business leaders looking to pursue their growth ambitions – it’s hugely inspirational and interesting.
Our credit analysis and monitoring platform helps us provide the middle with the bespoke deal structuring that’s typically reserved for large corporations. This hasn’t been possible to date because of the human cost of in-depth credit analysis – a traditionally manual process that is time-intensive and costly. But by leveraging machine learning, massive data sets and cloud computing, we’re building a long-term, sustainable business that is bringing a fundamentally better borrowing experience to the middle.
Our credit analysis and monitoring Platform helps to reduce the time needed to conduct robust credit analysis, so that our debt finance directors can spend more time getting under the hood of each business and designing a facility that’s right for them. It brings credit insight about our borrowers’ businesses back to the front line, democratising this knowledge so that our Debt Finance Directors have a deep understanding of the individual business, its industry and its sub-sector. As a result, our teams have more relevant and thoughtful conversations with the business owner. Instead of wasting time on the things that don’t matter, they are able to spend more time on the things that do – structuring a loan for our borrowers’ needs in the time frame they need it.
Furthermore, the Platform doesn’t only assist them with credit analysis and data optimisation, it also aids in portfolio monitoring. By proactively monitoring clients’ financial and operational data, it is able to provide early warning indicators in case of deterioration in credit quality, enabling our Debt Finance Directors to have a preliminary conversation with the client, well before a negative credit issue arises. This results in better outcomes for our clients.
It’s now been five and a half years since I joined OakNorth in December 2014 as one of the first ten employees. The bank didn’t even have its license yet, let alone any customers, but today, it is one of the most active lenders in the UK, having lent over £4bn since its launch in September 2015. Its loans have directly helped with the creation of 13,000 new homes and 17,000 new jobs across the UK. It has attracted deposits from 145,000 savings customers, been shortlisted for dozens of awards, and was recently ranked as Europe’s fastest growing company by the Financial Times. In 2019, it made almost £66m pre-tax profit – a 95% increase on the year before.
I suppose I wanted to share this experience because these last few years have been the best of my life, so I want others to know that you’re never too old or too settled in your career to take a risk for something you believe in. Whether that’s starting your own business or helping other entrepreneurs build one. Of course, it might not always go as well as it has at OakNorth but one thing’s for sure, you’re not going to know unless you try. With everything that’s going on in the world right now with the COVID-19 pandemic, many may unfortunately be pushed out of a job and forced to make some tough decisions in the coming months. But I’m a firm believer that out of every crisis comes new opportunity, so I hope that for some, that will mean taking a chance on something new and hopefully having an experience like the one I’ve had over the last five and a half years.
