SVB News/Analysis/ Big questions remain over SVB’s lending business Businesses with deposits in SVB accounts are breathing a sigh of relief, but what about those who’ve borrowed from the bank? By Amy O'Brien and Tim Smith 14 March 2023 \SVB News VCs are 'absolutely to blame' for SVB chaos, says Seedcamp’s Reshma Sohoni By Sadia Nowshin 15 March 2023 SVB News/Analysis/ Big questions remain over SVB’s lending business Businesses with deposits in SVB accounts are breathing a sigh of relief, but what about those who’ve borrowed from the bank? By Amy O'Brien and Tim Smith 14 March 2023 A worst-case scenario following Silicon Valley Bank’s collapse — which left founders unable to access millions deposited in its accounts — may have been averted. But SVB was also a prolific lender to startups and VCs on both sides of the Atlantic, and questions still hang over the fate of those loans. Many VC firms used SVB credit to invest in startups quickly when they didn’t have readily available capital. And founders increasingly looked to debt as an important source of capital when fundraising conditions turned tough last year. SVB UK — a wholly owned subsidiary of the US bank — was involved in some huge deals in Europe last year, including Paddle’s $200m Series D, and the $115m debt component to Wagestream’s Series C. Now, founders are starting to search for other lenders as they look to safeguard their credit lines, which have been thrown into uncertainty by SVB’s demise. And debt specialists say that the days of easy credit for VCs may be over. Update, March 14: Sifted has since seen messages from SVB UK staff that suggest the bank will continue to provide loans after its takeover by HSBC. However, there’s no guarantee that the new entity will continue to provide these services in the future. Big question marks SVB UK’s buyer, HSBC, has yet to comment on what will happen to the collapsed bank’s lending commitments, but the fact that the UK entity has found a new owner puts its customers in a much clearer position than US clients. Sifted has reached out to both HSBC and SVB UK for comment. “The situation in the US is murkier because there’s no buyer as of now,” says a partner at a European VC firm. This person, like many Sifted spoke to for this piece, was unable to comment on the record given the sensitivities surrounding the fate of SVB. “The FDIC [the US regulator] can only step in to ensure that deposits are being honoured, but I don’t think that any funding commitments will be honoured.” In the case of the UK entity, the partner expects that HSBC will take on all of SVB UK’s lending commitments, but he says it might take some time for business to resume as usual: “Everything has to settle and they will have to incorporate the thing and clean up everything — as you can imagine, it’s probably a mess.” While this uncertainty hangs over businesses, many are seeking alternative credit facilities, according to Johan Kampe, managing partner at London-based debt fund Claret Capital, and a former SVB director. “We are seeing a heavy amount of inbound where companies are looking at replacing credit facilities already,” he says. “None of us really know what this new structure [with HSBC] will look like and what the focus will be on the credit side… I think a lot of the other lenders will be stepping up to fill a gap — at least in the short-to-medium term.” “[HSBC] will have to incorporate the thing and clean up everything — as you can imagine, it’s probably a mess” Founders of revenue-based financing companies that set up SVB emergency loans over the weekend tell Sifted they were overwhelmed with applications. But it’s worth checking the small print of those loans: many of the seemingly low interest rates (at around 2%) were charged on a monthly, not annual, basis. Startups may also turn to other corporate lenders. Stockholm-based SME lender DBT tells Sifted that even before the SVB saga, it was seeing a steady increase in interest in the current economic climate. “As the equity market cools off, this naturally leads to a cooling off of the venture debt market,” says Alexis Kopylov, CEO of DBT. “As [equity funding] dried up, startups are refocusing towards profitability. As a result, they’re becoming more bankable and turning towards the traditional lending market.” Shutting down early-stage companies and VCs Other industry experts say that SVB’s downfall might actually make it harder for some in the ecosystem to access credit, especially if the HSBC deal doesn’t include SVB UK’s loan book, as some have speculated. It’s likely that HSBC would choose to not take on new debt clients, and could even be picky about which credit lines it chooses to honour, says one debt investor. That could include not extending debt to very early-stage companies, like SVB UK did, or to VCs for their own fundraising needs, the investor said. Credit lines for later-stage companies closer to profitability or to specific sectors with recurring revenue — and thus less risky — might be continued. This could leave early-stage companies with less choice of capital. SVB was the only bank in Europe that “really took the time to understand lending to loss-making startups and develop products that worked for the sector,” another debt investor says. One former Silicon Valley Bank investor tells Sifted that the future loans to VC funds might be safer than those given to startups, as they were “much lower risk” than lending to young businesses. But while the SVB saga has been a big shock to tech around the world, Kampe from Claret Capital says that it’s been a lesson in Europe’s resilience in diversity — compared with the more homogenous US market. “SVP had such a dominant market share across the US,” he says. “The UK is more heavily impacted, but a lot of that fades when you go across Europe where many different banks are players in this.” Tim Smith is senior reporter at Sifted. He tweets from @timmpsmith Amy O’Brien is Sifted’s fintech reporter. She tweets from @Amy_EOBrien and writes our fintech newsletter — you can sign up here. Related Articles SVB UK still funding loans after HSBC buyout, say sources By Tim Smith and Amy Lewin Click here to read more VCs are ‘absolutely to blame’ for SVB chaos, says Seedcamp’s Reshma Sohoni By Sadia Nowshin Click here to read more Silicon Valley Bank UK falls too By Amy Lewin Click here to read more What’s the best way to raise emergency funding for SVB-affected startups? 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