Pegasus Funding is delighted to welcome a guest blog from Lewis Stringer, Senior Manager, East and South-East Midlands, UK Network Team, British Business Bank.
Left to right: Russell Copley, MD, Greenborough Management; Ed Capes, Partner, Knights plc; Pat Doody, Chair, Greater Lincolnshire LEP; Samantha Harrison, Head of Business Lincolnshire Growth Hub, Lincolnshire County Council; Lewis Stringer, Senior Manager, UKN at BBB; Joe Cusdin, Founder, Iventis.
Addressing the regional disparities in access to finance in the East Midlands
As the UK government’s economic development bank, the aim of the British Business Bank (BBB) is to make finance markets work better for small businesses in the UK at all stages of their development: starting-up, scaling-up and staying ahead. This includes identifying and helping to reduce imbalances in access to finance for smaller businesses across the UK, in line with the government’s aim of boosting long-term growth in the regions and narrowing the historic North-South funding gap.
Imbalance in the East Midlands
These imbalances, specifically in terms of equity investment and other forms of growth capital, are clearly evident in the Midlands, particularly the East Midlands region.
For example, historically, the number and value of bank loans and overdrafts approved in the region have been in line with the business base (of 6% of the UK’s smaller businesses). This is also the case with peer-to-peer lenders, leasing, hire purchase and vehicle finance and more recently with the various Covid-19 loan initiatives, Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS), managed by the BBB.
As at 15th October 2020, 81,354 of the region’s businesses had already successfully applied for a BBLS loan to a total value of £2.37bn, and 4,124 businesses for a CBILS loan to a total value of £1.01bn.
However, by comparison, only 2% of the UK’s equity deals by number and <1% by value relates to East Midlands businesses, even though the region also has a potential high-growth business base of 6% (of the UK’s high-growth businesses) as well. The number and value of angel investments, as measured by EIS and SEIS deals, are equally very low, as is the deployment of the fourth Covid-19 initiative, the Future Fund, again, only 1% by the number and value of deals (7 convertible loans and £7.7m respectively).
What is the British Business Bank doing to help?
So how is the BBB addressing these regional disparities in access to finance? In addition to our £100m Regional Angels Programme, designed to help reduce regional imbalances in access to early-stage equity finance for smaller businesses across the UK, the bank also manages three regional funds, with the East Midlands region being covered by the Midlands Engine Investment Fund (MEIF), which was fully launched in 2018.
This fund supports over £250m of investment to boost small and medium-size business (SME) growth in the Midlands and is a collaboration between the British Business Bank and 10 Local Enterprise Partnerships (LEPs) in the West Midlands, and East and South-East Midlands.
MEIF itself provides commercially focused finance through small business loans, debt finance, proof-of-concept, and equity finance funds, with loan funding of between £25k and £1.5m and equity finance of between £100k and £2m available.
Up to the 30th November 2020, the MEIF fund managers had already made 449 investments in 330 SMEs totalling over £92m, with almost half being made in the East and South-East Midlands. It is also encouraging to report that MEIF was responsible for 20% of all equity deals in the Midlands in 2019, the first full year of the fund.
East Midlands businesses making the most of MEIF funding
Recent examples of regional investments include Tuk In Foods, a Leicester-based food manufacturer, and Krypto Kloud, a Lincoln-based cyber security firm.
MEIF funding enabled Tuk In Foods, an Indian food-to-go business, to progress its ambitious growth plans including the development of a premium ready meals range, the launch of an online delivery service and a collaboration with a Michelin-starred chef.
Krypto Kloud used the funding to open a new security operations centre to provide a variety of cyber security solutions across several industries including telecoms, commercial IT, military and government.
Alternative financing
There is no doubt that MEIF provides the region’s SMEs with alternative finance options – and it is these kinds of funding opportunities that will become increasingly important as the UK economy recovers from the Covid-19 pandemic and businesses consider growth funding.
MEIF has developed a strong track record of supporting some of the region’s high-growth businesses. This was highlighted in data released by the bank, as part of an Early Assessment Report in May 2020, emphasising that the reasons for setting up the fund remain robust, and charting MEIF’s progress between August 2017 and September 2019.
The report found that 68% of researched investee businesses had used investment to increase skills in their workforces with 37% of all jobs created paying above the UK upper quartile salary of £36,500 a year. Also noteworthy is that 85% of equity deals and 44% of debt funding was used to increase investment in R&D and innovation, leading to new products being developed.
In addition, 58% of investee businesses receiving debt and 30% securing equity were identified as exporting products or services, in contrast to national export estimates varying from 9% to 20% for all SMEs.
Helping smaller businesses
But it is not just a matter of providing funding. Alongside the BBB’s range of programmes to help reduce imbalances, on the demand side, the UK Network Team (UKN) is raising the bank’s profile among smaller businesses across the UK so that they are encouraged and enabled to seek the finance best suited to their needs.
Prior to the Covid-19 pandemic, the UKN was able to confirm that a reluctance to use long-term finance among the UK’s smaller businesses continued and application rates for funding remained historically low, meaning businesses were often forgoing growth. Again, this was particularly the case in the East Midlands.
At the same time, barriers to using some types of finance persisted, including a lack of awareness and reluctance to give up control, with many of the region’s smaller businesses still relying on their own experience when considering finance options. This reinforces the need for businesses to seek out the necessary advice and guidance on these options from specialist financing firms, such as Pegasus Funding.
So, the message for the region’s businesses is clear, despite the Covid-19 pandemic, there are still finance options out there to support your growth, and advice and guidance is readily available to access these options.
Lewis Stringer, Senior Manager, East and South-East Midlands, UK Network Team, British Business Bank – email: [email protected] mobile: 07810 054221
Tuk In Foods – https://www.meif.co.uk/leicester-food-to-go-manufacturer-tuks-into-200k-meif-investment/
Krypto Kloud – https://www.meif.co.uk/lincoln-cyber-security-firm-to-open-new-operations-centre-after-500000-meif-investment/
Midlands Engine Investment Fund – www.meif.co.uk