In the SME market, the banks are focussed on secured lending. The deviation from this type of secured lending is usually applicable for larger SMEs when Bank’s may consider unsecured projection led lending for that SME undertaking a larger transaction, for example a £25m turnover business about to make an acquisition.
Many commercial equity funds are focussed on real high growth business, especially those which already have existing turnover.
The conclusion is that more funds which can combine both debt and equity funding and which focus on the “S” of SME are required.
This will allow the right solution to be deployed:
- Debt if the business can support debt after perhaps a capital repayment holiday to allow the new monies to be put to good use to ultimately generate the future on-going repayments (this naturally also reduces the need to dilute shareholding at that stage).
- Equity if the business is looking to grow rapidly and is focussed on innovation & long-term shareholder value (or if it is too highly debt leveraged already, or the growth story cannot support debt at that stage).
These funding solutions are best delivered locally with Relationship Investment Managers. Regional focus works to encourage general economic growth, but also allows additional focus on particular sectors, under-represented groups or those with a specific purpose, for example supply chains / productivity.
SMEs and market gap funding options available via The FSE Group
The FSE Group offers funding solutions and support for all sizes of eligible SMEs. Currently there are 8 regional Funds under management, which can act as a key building block to leverage additional finance, for local SMEs. We are dedicated to bridging the funding gap to serve innovative, ambitious and scalable SMEs who, for whatever reason, are unable to source funding from conventional or even alternative funding channels to support their growth ambitions.
By understanding the direction and business goals of the individual SME and its clear expansion and growth plans, the business loans or equity solutions available, could enable them to make that step change to achieve the next level of growth for their business.
The Funds are supported by the likes of the British Business Bank and the LEPs / Local Authorities who have played such an important role in supporting market gap impact funding, and it is evident that the continued support of more Regional Funds is crucial to the recovery and growth of the smaller SMEs.
The power of creating smaller funds to support the community
The FSE Group’s parent entity is a Community Interest Company and it is a purpose led organisation. As a fund management business, we have a real passion and successful history in deploying and managing economic impact market gap funds to support SME growth.
The funds managed always have an economic impact purpose to them rather than a pure commercial return. The organisation has the capability and proven track record of managing both debt and equity funding and therefore can create the right solution / combination of those funding options.
The Group promotes sustainability and has a proven track record of successfully recycling smaller funds to generate continuous economic impact. This is shown for example, with the East of England Regional Growth Loan Scheme which is a £6.5m Fund, but over time that £6.5m has been recycled and has supported 225 businesses, agreeing more than £27.5m worth of loans and leveraging a further £75m of other finance into growth orientated SMEs. Supporting these businesses has created 1,100 new jobs with the East of England. The fund remains solid with the net assets still above £6.5m.
For more information of FSE’s funds under management visit: www.thefsegroup.com/overview-of-funds/
Words by Paul Marston, CEO at The FSE Group.