Member Article

Finance still available for North East SMEs

Andrew Mitchell, chief executive of North East Finance, manager of the region’s Finance for
Business programme, argues that the investment fund is offering vital access to finance for many
local SMEs at a critical time.

Last week’s ‘State of the Region’ discussion on finance, hosted by Bdaily, highlighted the very real
concerns that many businesses in this region have regarding access to finance. The topic under
discussion was where businesses could turn for support following the demise of One North East and
Business Link at a time when the new Local Enterprise Partnerships (LEPs) are yet to make any real
impact.

The debate couldn’t have been more timely. The latest figures issued for Project Merlin, the
Government’s plan to get the banks lending to small businesses, once again showed that they are
failing to meet their targets.

This trend is likely to continue given the impact of the Eurozone crisis and our continuing economic
uncertainties – and is why, in the current climate, the role being played by the Finance for Business
Fund in meeting the equity gap faced by many SMEs must be emphasised.

Various options were explored in the discussion – including the Government’s Regional Growth Fund
which also has an important role – but relatively little focus was paid to the Finance for Business
programme and its support for business growth.

The groundbreaking £125m portfolio of seven investment funds was the first investment of its kind
in the UK when it was launched in 2010. It has just celebrated its second birthday and the six fund
managers have already invested in excess of £40m in around 300 businesses. The aim is to support
over 800 by 2014.

The programme is no longer the only one in the UK, but continues to blaze a trail in demonstrating
how public money can stimulate the market, unlock private funding and drive growth. So far over
£25m of private sector co-investment has been attracted to match the money invested by the funds
–removing any doubt that this is ‘soft money’.

The number of deals across the region in the last two years is far higher than in the past and that’s
testimony to the funds. Without this intervention many of these deals wouldn’t have happened and
the fund managers are to be congratulated on investing in so many high quality deals across a broad
range of sectors.

Deal flow at the start was high and the volume of enquiries across the seven funds has continued to
hold up in spite of the economic climate, underlining the importance of the funds at this time.

The flexibility of the funds is another major advantage for businesses. The funds are accessible to
all, catering for ventures of varying stages and sizes from those looking to prove the concept of new
technology to established businesses looking to attract growth capital of between £500,000 and

£1m.

Crucially, the funds can also react to the changing needs of the market. This is something
demonstrated by the introduction of a seventh fund – the Microloan Fund – last year. The Microloan
Fund is aimed at the lower end of the market and offers loans of between £1,000 and £25,000. It has
already passed its 100th investment milestone.

Aimed at small companies starting out, many of which might be one man bands, demand for this
fund is likely to remain high with the banks unlikely to return to this end of the market in the near
future.

Finance for Business isn’t the only option businesses have in the region, but it is certainly helping to
drive economic growth and stimulate the market as intended when the funds were developed. We
look forward to this continuing through to the programme end in 2014 and beyond when the legacy
money generated from these investment returns will support North East SMEs of the future.

This was posted in Bdaily's Members' News section by Andrew Mitchell .