Cabinet Meeting - 16 th July 2014 Staffordshire Business Loan Fund Update

Size: px
Start display at page:

Download "Cabinet Meeting - 16 th July 2014 Staffordshire Business Loan Fund Update"

Transcription

1 Cabinet Meeting - 16 th July 2014 Staffordshire Business Loan Fund Update Councillor Mark Winnington, Cabinet Member for Economy and Infrastructure said: Creating the right conditions for economic growth, so that businesses can thrive and create more jobs for Staffordshire people remains the County Council s top priority. Throughout the recession one of the biggest issues for small businesses was access to funding as banks and other lenders turned off the financial tap and despite the recent recovery, the problem still persists. Since its launch in 2009, the Staffordshire Business Loan Fund has been instrumental in the success of over 100 small businesses that would otherwise not have had the funding they needed to launch or expand. The Fund has been responsible for creating or safeguarding 860 jobs, putting more money in Staffordshire people s pockets. I m delighted to see our loan scheme continuing to make a real difference to businesses and people across Staffordshire. Report Summary: The Staffordshire Business Loan Fund has made a significant contribution to supporting over 100 viable small businesses across Staffordshire, by providing loans of 10,000 to 50,000. Since November 2009, the loan fund has enabled small businesses to access finance, in order to help create jobs, develop and progress their growth and expansion plans. By May 2014, total loans of 3m had safeguarded and created 860 jobs. A further 1million of funding remains available to support small businesses in Staffordshire. Recommendations I recommend that: a. Cabinet recognises the success this initiative has achieved during the four and a half years since it was launched.

2 b. Cabinet appreciates that the loan fund has been instrumental to the diversification, development and growth of small businesses across Staffordshire. c. Cabinet and the wider membership help to promote the success of the Business Loan Fund and continue to help publicise the 1m still available for lending to viable small businesses across Staffordshire, who have been refused finance from their bank.

3 Local Members Interest N/A N/A Cabinet 16 th July 2014 Staffordshire Business Loan Fund Update Recommendations of the Cabinet Member for Economy and Infrastructure a. Cabinet recognises the success this initiative has achieved during the four and a half years since it was launched. b. Cabinet appreciates that the loan fund has been instrumental to the diversification, development and growth of small businesses across Staffordshire. c. Cabinet and the wider membership help to promote the success of the Business Loan Fund and continue to help publicise the 1m still available for lending to viable small businesses across Staffordshire, who have been refused finance from their bank. Report of the Deputy Chief Executive and Director for Place Reasons for Recommendations: 1. The Staffordshire Business Loan Fund is a partnership between Staffordshire County Council and BCRS Business Loans, which is a specialist non-bank lender. They were appointed following open procurement as the best equipped organisation to deliver the fund. 2. The fund was launched in November Its purpose is to provide access to loan finance to viable small businesses (those with less than 50 employees) previously turned down for loans by mainstream lenders such as banks. 3. The fund has made a significant contribution to supporting viable small businesses across Staffordshire by providing loans of 10,000 to 50, By May 2014, it had made 110 loans with a combined value of over 3m. The fund has enabled small businesses to create and safeguard 860 jobs which would have otherwise been at risk. This means continued income to individuals and families, and a vital contribution towards the economic growth and prosperity of the county.

4 5. Accessing finance has been a challenge for small businesses over the past few years. Banks understandably responded to the wider economic downturn, but with the effect that small businesses, particularly those without significant assets, have often been unable to invest to expand or develop. The Staffordshire Business Loan Fund was established to address this issue. 6. Since the formation of the partnership in November 2009 with BCRS, the County Council has invested a total of 2m in a 4m loan fund. We have invested funds with BCRS through four separate contracts. Each of those contracts has levered funding from the European Regional Development Fund (ERDF) totalling 1.6m and the ERDF funding will be available in tranches for reinvestment in future loans as each contract period concludes. In addition, the County Council s investment has levered 0.4m from other sources such as Regional Growth Fund. 7. Investment decisions are made on the merits of each individual loan application and there is an inherent commitment to advancing equality of opportunity by improving access to finance for all local, viable small businesses across Staffordshire. 8. It is important to note that there is a natural geographic spread that responds to viable demand, rather than insisting on equal geographical distribution across the county regardless of viability. Response from businesses in the districts of Cannock Chase, Lichfield and South Staffordshire has been particularly strong, and less so in the boroughs of Newcastle-under-Lyme, Tamworth and East Staffordshire. The County Council work with BCRS to target promotion to the less represented areas, for example an event was held in Burton-upon-Trent on 11 th December 2013 in order to provide information and raise awareness about the Staffordshire Business Loan Fund to businesses and intermediaries in this area. 9. The decision was made in March 2012 to extend the small business loans scheme for a further two years to address current need. Following the formation of the Stoke-on-Trent & Staffordshire Local Enterprise Partnership, the County Council invited Stoke-on-Trent City Council to take the opportunity to invest in a LEP-wide fund (with specified allocations to each Tier 1 local authority area). The Staffordshire and Stoke-on-Trent Business Loan Fund was therefore formed in March 2013, which combines 700,000 investment from Staffordshire County Council and 300,000 from Stoke-on-Trent City Council. This was matched by 1m from the European Regional Development Fund to create a total fund of 2m. This funding is available for lending to small businesses located within the Stoke-on-Trent and Staffordshire Local Enterprise Partnership area until June Of course, by definition, small businesses that are unable to access finance from mainstream sources such as banks are likely to be high risk to any investor. Despite the best efforts of any fund manager, a wide range of factors may cause a small business to be unable to fully repay a loan or even to cease trading. BCRS actively pursues late payments and takes security against loans where possible. To protect the County Council s investment

5 each funding contract with BCRS has included a provision for bad debt capped at 30%. If actual bad debt were to be higher than 30% then BCRS will be liable to meet the excess. If actual bad debt were lower, BCRS would retain the balance to reinvest as further loans. In practice, bad debt amongst loans made in the first three years of this programme is 23% and this compares favourably with other business loan funds elsewhere in the UK. 11. The Staffordshire Business Loan Fund reached a significant milestone in February 2014 by lending to Lichfield-based ICT solutions firm Netmania, the 100 th business to benefit from the loan fund. Netmania is a particularly compelling case study. The business received one of the first loans in 2010, after the managing director read about the loan fund in the County Council s Your Staffordshire magazine. That loan helped save their business when they lost a major contract. Having rebuilt the business, an additional loan recently received from the Staffordshire and Stoke-on-Trent Business Loan fund is contributing towards the diversification, growth and development of this business, particularly with 70% of Netmania s business now exported overseas. 12. A variety of businesses have benefitted from this financial support, including design, marketing and IT consultants, manufacturing companies, training providers, logistics and other professional service providers. 13. In addition to safeguarding and creating 860 jobs, the finance has enabled businesses to acquire new skills and equipment in order to diversify, innovate, launch new products and services, reach new markets and progress their growth. The success of the loan fund was recognised as the best economic regeneration project in 2012 at the Southern Staffordshire Regeneration Awards, run by the Southern Staffordshire Partnership. 14. Established initially as a response to the recession, the loan fund now focuses more heavily on enabling the diversification, growth and development of our small business community. By supporting more than 100 businesses to date, it has and will continue to make a significant contribution towards the economic growth and prosperity of the County. 15. A total of 1m of the loan fund is available for lending until June Prior to June 2015, the County Council will have determined whether there is ongoing need and a rationale for continuing this programme in this form. 16. As noted earlier, the County Council s investment has unlocked a similar amount of funding from ERDF which BCRS is contractually obliged to reinvest as further loans to small businesses in the area. This funding will be unlocked for reinvestment by BCRS once each of the four contracts concludes. Approximately 350k of ERDF will be available for reinvestment shortly, once loans under the first contract have been fully repaid to BCRS. Approximately 280k will be available from December 2016 once all loans under the second contract have been repaid. No ERDF was available under the third contract but matched investment was obtained from sources including Regional Growth Fund which cannot be recycled. Finally, 490k will be available for

6 reinvestment from the ERDF repaid to BCRS under the fourth and current contract from June There is the potential to access funds from the new ERDF programme in order to top up if Staffordshire County Council chooses to match, from June 2015 onwards. The rationale of demand will be monitored throughout 2014 to determine whether more investment is needed and justified to continue the success of this fund and the positive impact it has made to date. List of Background Documents: N/A Report Commissioner: Steve Burrows Job Title: Commissioner for Business and the Enterprise County Telephone No: