BUSINESS GATEWAY: ADDITIONAL FUNDING STREAMS 2015

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1 SUSTAINABLE DEVELOPMENT COMMITTEE: 26 NOVEMBER 2014 POLICY AND RESOURCES COMMITTEE: 4 DECEMBER 2014 BUSINESS GATEWAY: ADDITIONAL FUNDING STREAMS 2015 Report by Director of Development PURPOSE OF REPORT To update the Comhairle on the latest developments regarding future funding of the Business Gateway from 2015 and the potential requirement for additional Comhairle financial resources. COMPETENCE 1.1 There are no legal, equality, financial or other constraints to the recommendations being implemented at this stage. 1.2 Financial implications, once quantified fully, will be detailed in a further Report to a future series of Committees. SUMMARY 2.1 Following the Cabinet Secretary s Review of Enterprise Networks in Scotland during , Comhairle nan Eilean Siar, in common with all 32 Scottish Local Authorities, now delivers the Business Gateway service on behalf of the Scottish Government. 2.2 Nationally, Business Gateway does not currently of itself provide funding directly to businesses but rather focuses on the provision of advice and support including: signposting; information; one-to-one advisor support and access to workshops for new and growing enterprises. The Outer Hebrides Business Gateway (OHBG) does however deliver a number of Comhairlefunded/supported business funding schemes including the Fisheries Investment Scheme, the Outer Hebrides Small Business Assistance Scheme (OHSBAS), Prince s Trust: Youth Business Scotland (PTYBS); and the Inter-Island Business Development Scheme. 2.3 At a national level, Business Gateway is currently pursuing a number of new business development opportunities which have arisen, designed to enhance the current business offering. These opportunities are outlined in this Report - and a further report is anticipated to be brought to a future Committee series which will detail the financial and human-resource implications of delivering these new activities. 2.4 In the meantime, it is proposed that the Comhairle enter into an agreement with the Start Up Loans Company for Scotland (SULCo )which will allow the new Start Up Loans to become available throughout the Outer Hebrides at the beginning of RECOMMENDATIONS 3.1 It is recommended that the Comhairle: a) note the new funding-streams and activities proposed for Business Gateway; and b) authorise the Chief Executive in consultation with the Director of Development and the Director of Finance and Corporate Resources to conclude the Memorandum of Understanding relating to the Start Up Loans Company for Scotland (SULCo) on such terms and conditions as he deems appropriate. Contact Officer: Norman Maclean, Senior Business Development Officer, Appendices: None Background papers: None

2 BACKGROUND 4.1 The Outer Hebrides Business Gateway (OHBG) began in April 2009, following the Cabinet Secretary s 2007 Review of the Enterprise Network. The OHBG has proved to be highly successful since implementation and an overview of performance to-date was outlined in an earlier report to the June committee series. The OHBG provides valuable support to local businesses and is helping to grow the local economy and provide much-needed employment opportunities. Business Gateway s mission is to contribute to the delivery of the Scottish Government Economic Strategy. It is the Scottish Government s branded provider of universal consistent support services to small businesses across Scotland, regardless of customerlocation. Its goal is to increase the number and quality of new-start businesses in Scotland and to support existing businesses with growth potential. Key Business Gateway services include: a) Website - includes local pages for each area; b) BG Enquiry Service over-the-telephone business advice and access to market information; c) One-to-one sign-posting service i.e. advice, practical support and information provided by business support advisers in local area offices (Stornoway, Balivanich, Castlebay); and d) One-to-many Business Skills Workshops a range of relevant workshops, delivered across the country. 4.2 The national BG service does not provide funding to businesses directly of itself - but rather focuses on the provision of advice and support including signposting, sectoral information and access to workshops for new and growing enterprises. The OHBG does however deliver a number of Comhairle-funded/supported business funding schemes including - Fisheries Investment, Business Loans, Inter-Island Business Development Scheme, OHSBAS (part-eufunded grants for business development), PTYBS. At a Business Gateway national level, a number of new opportunities designed to enhance the current offering have arisen and are currently being developed. These opportunities are outlined below and a further report to the next committee series will detail the resource and financial implications of each. START UP LOANS COMPANY (SULCo) 5.1 The Start-Up Loans Company (SULCo) was established in 2012 following a report by Lord Young on Making Business Your Business, Supporting the Start-Up and Development of Small Business. Lord Young of Graffham is the Enterprise Advisor to the Prime Minister. SULCo is a private company and reports directly to the Department of Business, Innovation and Skills (BIS) with a Fund value of 137 million. Initially, SULCo was expected to help create at least 30,000 businesses across England through the provision of unsecured, low cost personal loans, coupled with business support and mentoring to people wanting to start a business. The target market was initially year olds then later increased to year olds. The programme is funded until March Following a review by Lord Young the age restriction was removed and the UK Government agreed to roll the programme out to the whole of the UK. The Loans are now available in Wales and in Northern Ireland and towards the end of last year, SULCo entered into discussions with the Scottish Government on how this could be extended to cover Scotland as well. 5.2 The Business Gateway service already has experience and expertise in helping people become finance ready. In many cases the service acts as the front door for existing local authority grants or loans in their area managing enquiries and assisting clients with applications. The opportunity to secure these additional resources to support people in Scotland to start their own business is welcomed and it is recognised that such an opportunity is needed to form an integral part of the Business Gateway offering - given the network s established role in supporting startup activity. As Business Gateway is a branded service and not of itself a legal entity, it was also clear that a mechanism was needed that enabled these resources to be accessed.

3 5.3 The proposed model of support is personal loans aimed at those unable to secure commercial lending through other means to support a business-start and - while this duplicates some existing loan schemes currently being delivered by Local Authorities - it is not intended that this loan would replace existing loan schemes Local Authorities contribute to especially where the local authority provision is as a funder of last resort. Ideally SULCo were looking for one organisation with a consumer credit licence to contract with on behalf of local government and it was decided that the Management Services company that underpins the West of Scotland and East of Scotland local authority loan funds would organise itself to deliver the financial aspects pan Scotland and it would be this organisation, on behalf of local government, that would contract with SULCo. The delivery of the support and advice would come from the local Business Gateway offices governed by a Memorandum of Understanding between each participating local authority and the Management Service Company. 5.4 A number of areas in Scotland have now been piloted successfully and the remaining areas, including the Outer Hebrides are working towards the roll out of the fund in their respective areas. A Memorandum of Understanding has been sent to the Comhairle for signing once this has been completed, the Business Gateway team will receive training from the Management Services Company and from there the fund will become available locally anticipated January The general terms of SULCo loans are as follows: Loans of up to 25,000 with an average loan of circa. 6,000; Loans above 10,000 require to be jointly approved by SULCo; Businesses must be in their first year of trading at time of application; No age restrictions on owner / partner / director; Loan is made to the individual and not the business; Loan is regulated by Consumer Credit legislation; and The typical loan terms are 6% interest rate, up to 5 year term. 5.5 The Local Authority (through Business Gateway) will undertake the following activities and have the following responsibilities in relation to the provision of SULCo loans and subsequent advisory services: Marketing and outreach; Meet loan applicants and provide information on SULCo; Pre-business support (business plan, cash flows and survival budget); Recommend individual applicants for approval by WLSF Management Services on a without prejudice basis; Provide ongoing support, mentoring, training and help-desk service; Manage an issues with WSLF Management Services; Report to WSLF Management Services and SULCo where required. 5.6 Notwithstanding the above, the Comhairle shall in no way be liable for the default of any client under this scheme. The Comhairle, through Business Gateway, shall only have power to recommend applicants for loans and shall not have the right to enter into binding agreements with applicants to provide loans under the SULCo scheme. The Comhairle will be entitled to charge SULCo a fee for our services in relation to the SULCo loans and loanees. 5.7 As soon as possible following the completion of each loan (which will be the signing of legal documents and advice of loan), the Comhairle shall invoice WSLF Management Services for an amount of 400 plus VAT. The payment will be paid as follows: 300 plus VAT within 45 days of the first day of the month immediately following the issue of the invoice; and 100 plus VAT on the date 6 months following the issue of the invoice.

4 NATIONAL DIGITAL ENGAGEMENT PROGRAMME 6.1 The Business Gateway National Unit is co-ordinating a Business Gateway wide bid to deliver digital engagement activity (specialist advice, workshops, etc.) building on the success of the HI Digital Programme (managed by HIE) which ends March A number of options are currently being considered as follows: a) Business Gateway bids to deliver the programme in its entirety. This gives Business Gateway greater control but may mean managing this activity, possibly procuring a delivery-partner, albeit with a co-ordinator funded by the project and hosted within Business Gateway National Unit; b) Status Quo remains. With HIE leading the Programme and using its providers for workshops and advice; c) A hybrid of the foregoing. With Business Gateway taking greater control of delivering events and advice but keeping some elements of HIE branding/integration. 6.3 Each Business Gateway area has already fed back to the Business Gateway National Unit their preferred option and the National Unit will make the decision on how best to proceed. The financial and resource implications will remain unclear until the preferred option is known. SCOTTISH LOCAL AUTHORITY BUSINESS LOAN FUND 7.1 An opportunity also exists currently for all of Scotland s Local Authorities to be part of a pan- Scotland Local Authority Loan Fund modelled on the successful West of Scotland Loan Fund and East of Scotland Investment Fund. 7.2 A pan-scotland Loan Fund is likely to be eligible to secure ERDF funding from the European Structural & Investments Funds Programme A collective bid from Scottish Local Government is actively being encouraged by Scottish Government. The fund will offer secured loans of up to 100k to eligible companies at a fixed interest rate of 6% per annum with no additional fees or charges. The fund will be different from SULCo in that SULCo is unable to offer investment to existing businesses. The fund will be delivered through a newly incorporated company, limited by guarantee which all 32 Scottish Local Authorities will be invited to join. 7.3 The proposed delivery structure comprises three operational areas - East, West and Highlands & Islands each of which will essentially operate as a fund within a fund. It is envisaged that the company s Board of Directors will consist of two to three members from each operational area. Each Local Authority s financial contribution to the fund will be exclusively ring fenced to be invested by that LA in their area only and will attract additional ERDF match funding. It is estimated the amount of lending across all 32 Local Authorities will be in the region of 5m 6m per annum and as the ERDF funding is initially for a 3 year period this could create a fund valued at 15m 18m. The target go live date for the new fund is 1 st April The new Pan-Scotland Fund will offer gap-funding to small and medium-sized enterprises (SMEs) within its geographic area of operation in the form of: Loans up to 100,000 (probably operating in the range 10k - 100k); Secured by Standard Security, Bond & Floating Charge and / or Personal Guarantee; Some loans may be offered on an unsecured basis depending on circumstance; and Interest rate fixed at 6% per annum with no additional fees or charges is anticipated. 7.5 The success of the fund will ultimately be determined by its measurable economic impact. A range of indicators and targets will be agreed with the Scottish Government as part of the ERDF application and approval process, however, based on the current EU funding programme the key measures are likely to be:

5 Number of enterprises receiving financial support; Number of new business starts receiving financial support; Value of loan invested, analysed by member authority area and by period; Value of private sector match funding; Value of total funding package; Leverage in terms of private and other public sector funding; Number of gross jobs created; and Increase in turnover in supported enterprises. 7.6 From a legal perspective it is proposed to set up a new company limited by guarantee (NEWCO) and to offer Membership to all 32 Scottish Local Authorities. As a company limited by guarantee, the Members will be Scottish Local Authorities. The business and assets (except the loan books) of WSLF and ESIF would transfer up to NEWCO and WSLF Management Services would remain as a wholly owned subsidiary to carry on delivering specific contracts, administrative functions, Start Up Loans Company (SULCo) etc. thereby retaining its VAT registration for existing and future commercial opportunities. 7.7 The Company will apply for Investment Company status to improve its Corporation Tax status, a position currently enjoyed by WSLF and ESIF. A working-group agreed on 1 st October that the company should be incorporated under the name Scottish Local Authority Business Loan Fund Ltd, however, the option exists to trade under or be known by a different trading name and options for this are currently being considered by the group. Each Member Authority will be responsible for delivery of the fund within its own area. This includes promotion of the fund to eligible businesses and stakeholders, identification of potential applicants, supporting businesses through the application process, appraising and determining applications and maintaining contact with/providing after care to loan recipients. 7.8 It is proposed that Business Gateway will deliver the new loan scheme and the role and process will be fairly similar to SULCo. There could be resource implications should demand be high. There are financial implications, as match funding will need to be identified - the ERDF contribution is expected to be 50%. EUROPEAN STRUCTURAL AND INVESTMENT FUNDS (ESIF) BUSINESS GATEWAY PROJECT PROPOSAL 8.1 Earlier in 2014, an opportunity emerged for Business Gateway to apply for European Structural and Investment Funds (ESIF) under the theme Business Growth Accelerator. The Highlands & Islands Business Gateways decided to develop a partnership project that would complement and extend the scope of Business Gateway services across the region. The feedback received at the time suggested that a collective application would likely receive approval, rather than each area making individual submissions. A similar project is being developed in Lowland Scotland. The project will build on the experience and track record of delivering additional ERDF funded outcomes via Business Gateway through the ERDF programme The package will enable the local delivery of enhanced Business Gateway and local discretionary activity services through a flexible set of interventions tailoring these to local circumstances and opportunities. The key objectives are to: support business growth and innovation in the micro-firm and SME sectors which will dovetail into SE activity ensuring no duplication of service delivery; generate additional jobs growth; increase the number of employment opportunities particularly for young people; and create a seamless approach to business advice / delivery through all partner organisations.

6 8.3 In the Highlands & Islands there will be five lead partners covering the seven Business Gateway programme delivery areas: Highland Council: Highland and Morayshire Shetland Council: Shetland Islands Orkney Council: Orkney Islands Comhairle nan Eilean Siar Outer Hebrides Argyll & Bute Council: Argyll & Bute and Arran & Cumbrae (North Ayrshire) 8.4 The programme will complement and extend the scope of core Business Gateway services in the area, utilising wherever possible the existing delivery infrastructure as the platform from which additional and new activities can be launched and delivered. The support is consistent with the framework developed nationally across Business Gateway delivery regions, focusing on early stage growth activity, advisory support, growth funding and resource skills and capacity building. 8.5 A common menu of support interventions based around specialist advice, grants, training and events will be used flexibly by each lead partner to provide the appropriate local support needed to strengthen the local pipeline of growing businesses. The proposed Programme spend across the Highlands & Islands is expected to be approximately 1m per annum. The 50% match funding will be provided by the respective local authorities, from core budgets for economic development, including resources dedicated to delivering the Business Gateway service. 8.6 In respect of the ESIF application, each area will decide from a menu of activities which ones it will deliver on the following three activities are being proposed for the Outer Hebrides: a) Specialist advice - One to one support from a specialist adviser to help a business with specific issues relating to growth, particularly marketing, tendering, access to finance, growth strategy, business processes, HR and recruitment. A minimum of a half-day and a maximum of 3 days advice per business. b) Grant funding - Grant funding to support a business with a growth project, particularly capital expenditure, marketing, ecommerce, reaching new markets, or other non-statutory costs relating to growth. A minimum of 1,000 and maximum of 2,000 per business. c) Workshops - Workshops on topics supporting business growth including finance, growth strategy, developing and managing staff, marketing, ecommerce and other topics as evidenced by local demand. 8.7 It is anticipated that the ERDF intervention will be 50% - as follows: Activity Total Cost ERDF (50%) CNES Match Specialist Advice 30,000 15,000 15,000 Grant Funding 30,000 15,000 15,000 Workshops 20,000 10,000 10,000 Total 80,000 40,000 40, The resource and financial implications are still to be clarified, but it is anticipated that some of the match funding would be found from funding already allocated for existing Business Gateway workshops.

7 LEADER PROGRAMME The forthcoming LEADER Programme is anticipated to be operational by April The new Programme will include funding for business support and will likely engage with Business Gateway to provide this support. Along with providing support to local communities, the LEADER Programme will not only support communities to provide them with the tools to develop innovative projects but also enable small rural businesses to embed and flourish whilst also enabling new opportunities to be created through supporting sustainable crofting and farm diversification projects. These differing types of assistance will support community-led local development within the Outer Hebrides. 9.2 A minimum of 10% of the 6M LEADER budget is allocated to be spent on Small Rural Business Support and a further 10% on Crofting and Farm Diversification with both these budget-streams anticipated to impact almost exclusively on the Business Gateway team. 9.3 Small Rural Business Support - Businesses currently receive support from a variety of agencies including Business Gateway and Highlands and Islands Enterprise. Following consultation with these agencies it was identified that there are some gaps which could be supported through LEADER. This includes support for business mentoring including governance and financial planning, supporting business diversification / growth and the option of offering Market Test grants to allow small innovative ideas to be initially piloted before starting up as a full-time career. This would also fit with the LEADER ethos of transferring and sharing knowledge and providing a platform for innovative ideas to be developed. 9.4 Crofting and Farm Diversification - LEADER funding will be able to support crofters to diversify into other areas and this could include adding an additional element to their portfolio, taking part in events and networking opportunities or working with others to develop new products and services or innovative working practices. Similar to the Business Support funding projects will be supported in line with the LDS and should benefit not only the individual but the larger community. To a lesser degree than the Small Rural Business Support scheme, there may be a need for Business Gateway to be involved in individual projects should there be a business element to the diversification. 9.5 Additional resource implications for Business Gateway are uncertain at this time but will become clearer as the allocation to the LEADER Innse Gall LAG is decided over the coming months. CONCLUSIONS 10.1 The new activities proposed, as outlined in this Report will develop, complement and extend the scope of Business Gateway services across the Outer Hebrides Delivery of the various schemes and programmes will have staffing and financial implications for the Comhairle. At this stage, the resource implications are unclear It is anticipated that a further Report will be presented to the Comhairle once further information is available.