Occupying one corner of buzzy Soho in central London, the offices of growth-business lender OakNorth are a world away from the jazz clubs, raucous pubs and topless bars these streets were once known for.

OakNorth has disrupted the small and medium-sized business lending market. Launched in September 2015, OakNorth has lent £3 billion to British business within four years.

The lender does not disclose the number of businesses it has backed. However, it has lent anything between £500,000 to £40 million or more to businesses including coffee chain Notes, Z Hotels and Leon.

Growth Business sat down with CEO Rishi Khosla as he explained OakNorth’s funding model, why it addresses a gap in the market and its plans for the future.

Khosla, 43, dresses casually-chic – he could be as at home in an upmarket boho hotel on Goa beach as in a bank boardroom. As he talks, he plays with string bracelets on his wrist.

However, it would be wrong to imagine Khosla thinks like a hippie. His crackling intelligence is plain. Behind him is the stand-up treadmill he famously uses during office hours, eschewing a sit-down desk. Photographs of him alongside British prime ministers Theresa May and David Cameron, Indian prime minister Narendra Modi and Chancellor Philip Hammond.

In February, OakNorth was on the receiving end of the biggest-ever fundraise for European fintech. Japan’s SoftBank led an investment round worth £324 million into the start-up.

Can you briefly explain OakNorth’s business model?

We’re not focused on microbusiness or sole proprietors. We’re dealing with businesses that are in scale-up mode. Our view is that those businesses are totally underserved and overlooked by the market.

Three decades ago, you used to have a local branch manager who knew all the business within his locality and, importantly, had this ability to decide on how much to lend. Over the last decade, that’s been replaced by a model-driven approach to lending, where a branch manager has no authority to do anything except for putting numbers into a computer. Typically, computer says no, right?

If you look over the last few years, there’s been a lot of innovation in lending, but all of that innovation has been in micro-business. As soon as you go above micro business, there’s been almost no innovation in approach or technology. If you’re a borrower looking to scale, you’re getting serviced by the retail division of a commercial bank. What you’re getting a pretty poor service. These are businesses in growth mode, so their needs are much closer to what a corporate institutional client looks like, rather than a retail client. But clearly, they’re far too small for an institutional investor.

Our model is fundamentally servicing those clients where we can provide a corporate-institutional underwrite on a small deal quickly.

The way we can afford to provide that is through our proprietary platform OakNorth Analytical Intelligence (OAI), which pulls in thousands of datasets and which we’re licensing to overseas banks.

‘Most growth businesses don’t even think about debt’

Why are high street lenders failing scale-up businesses?

The cost of the underwriting [analysis] isn’t worth it. For example, if you’re a business with £30 million turnover looking to borrow £6 million, a bank doing a proper drilldown would throw two or three analysts onto it for two or three weeks. They’d go in and see the company, benchmark the analysis, run stress tests and come back with, ‘This is what a loan package could look like.’

You can’t afford to do that on a £6 million loan because you’re getting 1 per cent or 1.5 per cent, so you’re a getting £60,000 to £90,000 return, against a £60 million loan, where you’re getting between £600,000 and £900,000.

It’s the same amount of work.

This has been the perennial problem when dealing with these businesses. The cost of the underwriting is so high, you move to a standardised way to underwrite them.

Given the platform we’ve developed with OAI allows us to bring the cost of the underwrite all the way down, the efficiency of it allows us to act much quicker.

We offer faster, better decisions using the same toolset that you use to make larger, complex decisions. We’re not dumbing down the process; we’re staying true to the intellectual honesty of an underwrite but using technology and the efficiency that brings.

What’s the main reason why people come to see you? Why do they need finance?

A lot of people come to see us because they’ve been told that OakNorth delivers. It’s typically businesses looking to grow, expand, acquire buying out an existing founder. There may be a desire to take some liquidity out of the business to offer dividends instead of selling the business. On the real estate side, it’s often about acquisitions.

How much have you lent to growth businesses so far?

Our current facility stands at £2.5 billion with £500 million worth of repayments, so that’s £3 billion in total.

What kinds of business do you lend to?

Excluding financial services and oil/gas, our lending mirrors the needs of the British economy both in terms of sectors and regionality.

Around 60 per cent of our lending to date has been to property. We’ve helped finance construction of 11,000 housing units to date focusing on social and affordable housing.

But we’ve also lent to hospitality [Hotels, restaurants, pubs], care homes, manufacturing, services, business services and technology media businesses.

What’s your average size of loan?

We don’t disclose our average loan size but we lend between £500,000 up to £40 million.

What do you need to see from entrepreneurs approaching you?

We need to see turnover of between £1 million to £100 million – that’s the range.

Why should Growth Business readers come to you rather than a high-street bank?

We’re very focused on exactly your segment and we have meaningful ambitions in this space.

Mainly, it’s about making them aware there’s even a debt provider specially set up for that sector. Most growth businesses don’t even think about debt because banks have soured things so much. It’s almost as if they’re saying, ‘If you want to waste your time, come and get debt from us!’ (laughs)

What should people expect to pay in terms of APR?

It’s mid-to-high single digits. We don’t try and compete with big banks, it’s about offering a more bespoke service and speed. We’re offering days and weeks for a decision compared to months.

Repayment terms can be anything from two years to 10 years.

Do you need to have collateral to secure a loan?

All OakNorth loans are senior secured but that doesn’t mean they have to have collateral. We take full charges on businesses we lend to, but borrowers do not have to have assets. That said, a good proportion of our loans are collateralised, but this does not have to be real estate — it could be inventory, debtors, receivables or, in one case, art gallery paintings. Of course, a big institution is happy to do that kind of research but not normally for loans of this size.

How long does it take you to decide?

Typically, we get credit approved in five to seven days. To cash in another 10-20 days. We’ve done deals much quicker than that – we did one deal in six days from beginning to end. And the quickest we’ve done a deal for an existing client is 13 hours.

You’ve never had a default or arrears. What’s the secret sauce?

We monitor our book. Most commercial lenders don’t monitor their book. They put money out and they wait for an issue to arise. As a borrower, one of the advantages is that often we’re putting better management information than the borrower has themselves. In many cases, we’ve said, ‘We can see an impending issue building up here.’ Borrowers actually appreciate it. We may not agree on a course of action, but at least we’ve flagged an issue. A normal bank waits for an issue and then gets really aggressive about wanting its money back.

We’re in sync with the management team and let them decide based on the data. It’s a totally different dialogue. Generally, they don’t view it as bad news, they view it as massively helpful. We’re not forcing them to do anything. We’re about how do you get the best result for the business, which gets the best result for both us and our client.

Where do you see OakNorth in two or three years?

Multiple times larger. I see our focus as getting capital to growth businesses. It’s a $7 trillion market, so we’ve got our work cut out for us (laughs).