New Growth Fund is too big for 'real' SMEs

New Growth Fund is too big for 'real' SMEs



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Last week saw the New Growth Fund officially open for business.

 With £2.5 billion worth of funds available specifically to help Britain’s smaller and medium sized enterprises through the tail end of the recession, it was hoped that The Business Growth Fund (BGF) would have a serious, and positive, impact on the market.

Launching the BGF in Birmingham, Business Secretary Vince Cable said: “The Business Growth Fund is ready to make substantial equity investments into ambitious mid-cap British companies who are set to create the business success stories of the coming years.”

He added: “This private fund will provide crucial support to the firms generating the employment our economy needs.”

However, despite the apparent scope of the independent fund, which is backed by five main banking groups – Barclays, HSBC, Lloyds, RBS, and Standard Chartered, those who have spent the last five years working closely with Britain’s SMEs are seemingly unimpressed.

Their main concerns stem from the fact that a fund which was intended to help ‘SMEs’, cannot help most small enterprises, as it is only available to businesses with an annual turnover of between £10 million and £100 million, and only invests approximately £2 million - £10 million per business in return for a minimum 10 per cent equity stake and a seat on the board for a BGF director.

Adam Tyler, CEO of the NACFB, said: “Since when did a small business start at a turnover of £10 million and look to borrow at least £2 million. Are these even classed as Medium sized businesses in this struggling market for SME’s?”

Rob Lankey, Managing Director of Commercial Mortgages at Aldermore, explained that the fund was never designed to be a ‘catch all’ scheme, and is not directed at smaller businesses. He added though that other ‘lifelines’ established by the government to help these small businesses were all ready failing in their mission.

“It has to be a concern that the big banks have already fallen behind in meeting their commitment to lend more to small business under the terms of Project Merlin,” he said.

“ We at Aldermore also think there is more the government could do to ensure that companies to whom they outsource work pay their sub-contractors, who are frequently small and medium sized businesses, in a timely fashion.

“There is a lot of talk about supporting SMEs, but I still hear an awful lot of anecdotal evidence that the benefits are not passing through to those companies that need the most help.”

At this point, industry experts agree unanimously that whether the BGF was designed to help the majority of SMEs or not, a pot of £2.5 billion would certainly be greatly appreciated among those who we would classify as ‘small’.

Adam Tyler concluded:  “In order to reach the real SMEs, we need a fund for businesses with a turnover of £100,000 who are looking to borrow for example £10,000.

“Yet even a fund with a minimum loan size of £100,000 would bring in some of those businesses that really want to grow and who will employ new staff, perhaps ex public sector staff.

“If we cannot fund these businesses they will not expand, they will not employ new staff and they will not increase their income and pay more taxes, which would help stimulate economic growth.”

The independent fund, backed by five main banking groups in collaboration with the British Banker's Association, is said to have been created with the intention of providing a long term equity investment for those companies which today do not have access to this type of capital. For further details on the fund, visit www.businessgrowthfund.co.uk.

 

 

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