Key lessons in regional SME funding

By Jon Scopes- ICAEW Manchester and Finance Business Partner

The success of the SME sector is fundamental to the economy and the ease of access to funding for growth is a key component in driving that success.

The introduction of regional programmes from the British Business Bank, such as the Northern Powerhouse Investment fund (“NPIF”), have been an important innovation in this arena to drive regional growth. For example, NPIF has already helped 440 SMEs to develop their businesses since its inception.

Working with the SME community has always been important for ICAEW. If you are considering gaining funding through these programmes, we want to share with you some key lessons learnt during a masterclass event with NPIF. Organised by ICAEW Manchester but relevant to all, these insights were given from both the fund managers and the businesses that had been through the process.

It quickly became apparent that the key questions at this event were around the practical considerations of how to apply to these funds successfully and, equally importantly, the relationship with funders post investment.

The key lessons

Firstly, whilst these regional programmes provide funding to companies who have been unsuccessful in obtaining finance through “traditional” routes this by no means indicates that those businesses are inherently problematic. Sometimes it’s simply that the sector isn’t attractive to lenders. But of course, more frequently it is the lack of tangible security that is the issue.

This is where one of the real strengths of these funds came across. All our speakers have vast experience of working with SMEs and do the old fashioned thing of getting under the skin of the business and really understanding the proposition in front of them. The key theme that emerged was “partnership”.

This was no better illustrated than where equity investment is required. These funds are sensitive to the fact that owners are reluctant to part with some of their stake in “their baby”. In fact, if things go much better than expected, the fund will look to channel some of the extra gain back to the owners

All of this led to lesson two. Sure, the financial projections matter. But businesses applying (and their advisers) must understand that it’s the “story” of the business that is the most important thing. Business plans must set out compelling (but realistic) arguments as to why the company will succeed.

Lesson number three was that great stories need convincing story tellers. The investibility of the people is just as important as the attractiveness of their business. The track record of the management team, and their plans to fill any gaps, are a key part of the assessment.

Post investment it is important for the investee company to provide regular management information – and not just the numbers, but a commentary explaining why the numbers are what they are. More than that, it’s about keeping in touch and being open and honest even when the news is bad– partnership again. An investee company noted how they considered the “partnership” behaviour to be vital to success, and how it had helped ensure that the investment had driven growth and profits. 

If you are an SME considering looking at the funds set up by British Business Bank, remember that communication is key. It can be daunting to go through the process after a rebuttal by the bank, but if funding is the right thing for your business to grow then consider the key lessons noted above. For further guidance and insights, do utilise the Business Finance Guide here – a free digital resource aimed at supporting you on the journey from start-up to growth.