British digital lender Starling Bank has raised £272m to fund growth as it plans for the end of government-backed loan schemes that have propelled it to profitability during the pandemic.
The challenger bank, which launched in 2017, said it was planning for an initial public offering “at the very, very earliest at the end of 2022”. The latest funding round would value it at £1.1bn.
The announcement came after Starling recorded four successive months of profit up to January this year, the company said on Monday.
Its growth has been driven by a wave of government-backed lending aimed at supporting businesses during the pandemic. Starling’s gross lending now exceeds £2bn — having increased by a third since October — and it has more than £5.4bn in deposits.
Anne Boden, Starling Bank’s chief executive, told the Financial Times that the start of the government’s bounce bank loan scheme (BBLS) and the coronavirus business interruption loan scheme (CBILS) were a “defining moment” for the bank, but she said the challenge was now to secure profitability as the schemes began to wind down.
The new funding will be used to grow Starling’s consumer lending business and back its long-planned European expansion.
“What we now need to do is transition into other forms of lending and move away from government-backed lending,” said Boden. “We’re now in the situation where we are raising capital to build up our balance sheet, do more lending, support our expansion into Europe and plan for M&A.”
As of February 21, the government had lent more than £67bn to more than 2.2m businesses as part of BBLS and CBILS. While only 300,000 of Starling’s 2m accounts are business banking accounts, corporate loans make up a disproportionate part of its lending. It has issued about £2bn of government-backed loans.
The company raised the money from Fidelity, Qatar Investment Authority, Railpen and Millennium Management. Boden said the bank’s backers were “absolutely an affirmation of Starling’s success . . . and show how people consider us among the HSBCs and Barclays of this world.”