SUSTAINABLE DEVELOPMENT COMMITTEE: 20 NOVEMBER 2013 POLICY AND RESOURCES COMMITTEE: 28 NOVEMBER 2013

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1 SUSTAINABLE DEVELOPMENT COMMITTEE: 20 NOVEMBER 2013 POLICY AND RESOURCES COMMITTEE: 28 NOVEMBER 2013 REVOLVING LOAN FUND Report by Director of Development PURPOSE OF REPORT To update the Comhairle on its Revolving Loan Fund and seek additional funds to enable continued provision of support to the fisheries and other business sectors. COMPETENCE 1.1 There are no legal, equality or other constraints to the recommendations being implemented. Financial implications are detailed in the body of this Report. SUMMARY 2.1 Over many years, the Comhairle has provided a suite of funding and advice services to the Outer Hebrides small business community. Funding for loan schemes has come mainly from the Comhairle and ERDF funded programmes. 2.2 The Comhairle established the Revolving Loan Fund (RLF) in 2006/07 which utilises loan repayments recycled from other loan schemes. RLF provides micro loans and larger loans to business and, since September 2012, encompasses the Outer Hebrides Fisheries Investment Scheme (OHFIS) to enable the Comhairle to provide support to the fisheries sector. 2.3 The Outer Hebrides Small Business Assistance Scheme (OHSBAS) is almost fully committed and due to end in December There has been a surge of applications under OHFIS since September 2012 and eleven applications have been approved to-date, totalling in excess of 400,000. There are a number of fisheries cases in the pipeline. In addition, the Comhairle recently approved 90,000 from the RLF to match fund the Business Gateway Plus ERDF application. 2.5 With the imminent closure of the OHSBAS and OHFSS schemes and no further funding available under RLF, there will be no further funding available to support local business startup and growth. 2.6 Therefore it is proposed to fund the Business Gateway Plus initiative from the Revenue Match Fund rather than the RLF as previously agreed. This will enable funds to be retained in the RLF to support pipeline and other cases for assistance under OHFIS. A further Report will be brought back to the Committee in February 2014 to consider options for future funding. RECOMMENDATIONS 3.1 It is recommended that the Comhairle: (a) (b) approve 90,000 from the Revenue Match Fund for the Business Gateway Plus initiative; and that a further Report be brought back to the Comhairle in February 2014 on options for future funding to support activity in the fisheries and other sectors. Contact Officer: Norman Maclean, Senior Business Development Officer, Tel: Appendix 1: Summary of Business Gateway Funding Schemes

2 BACKGROUND 4.1 Since 1990, the Comhairle has provided a range of funding schemes to support new business development and growth and to create jobs. The funding for these schemes is provided by the Comhairle, European Regional Development Fund, Royal Bank of Scotland and the Prince s Trust Youth Business Scotland. 4.2 Since the introduction of the Outer Hebrides Business Gateway in 2009, there has been an increase in the number of business support schemes which provide assistance for business start-up and development activity. A summary of all schemes is provided at Appendix Two schemes, the ERDF funded Outer Hebrides Small Business Assistance Scheme (OHSBAS) and the Outer Hebrides Fisheries Support Scheme (OHFSS) are in the process of finishing and will be closed by the end of the year. In terms of OHFSS, the current State Aid approval for this scheme expires in December Discussions are on-going in relation to an extension of the State Aid approval which is linked to the current European Fisheries Fund Regulation. 4.4 In 2006/07, the Comhairle established the Revolving Loan Fund (RLF), utilising loan repayments recycled from the various funding schemes. The RLF provides Micro Business Loans of up to 2,000 interest-free and Business Loans up to 50,000 (4% secured, 6% unsecured). 4.5 The RLF was extended in September 2012 to incorporate loans to the fisheries sector through the Outer Hebrides Fisheries Investment Scheme (OHFIS). 4.6 On 12 September 2013, the Comhairle agreed to match-fund Business Gateway Plus, a part EU-funded ERDF project to support business development activity, from the RLF budget. The total project cost is 150,000, with 90,000 committed from the RLF. 4.7 The RLF is almost at capacity with approximately 18k available to support fisheries and other business development proposals. There are already pipeline cases being progressed that will use up this balance. 4.8 Over the last 5 years, 1.8m has been approved to support individuals to start up in businesses and existing businesses to grow. A further 20m has been levered from external funding sources, primarily private investment. An estimated 329 jobs have been created or safeguarded as a result of this support. Although less quantifiable, the number of indirect jobs created / safeguarded is also considered to be significant. 4.9 In the past 20 years, since the Comhairle has been supporting businesses, almost 800 businesses have been assisted; over 7m in funding has been provided, with up to 50m having been levered from other sources. Approximately 1,500 jobs have either been created or safeguarded. The average default-rate for the period has been 4.6% - which is considered extremely low, given many of the clients supported were unable to access some or all of the funding from other (commercial lending) sources and therefore considered to represent a greater risk Some excellent outcomes have been achieved in respect of performance against targets with particular regard to the number of individuals assisted into self-employment. Performance for this current year 2013/14 to-date is very encouraging, with 28 start-ups being achieved in the first six months against an annual target of 35.

3 REVOLVING LOAN FUND CURRENT SITUATION 5.1 The RLF budget is made up from previous EU-funded schemes as follows: RLF Budget (Business Advantage Phase 1 & 2) : 579k OHSBAS loan repayments to date : 170k Interest Accrued (OHSBAS) to date : 23k Total Budget : 772k LESS Loans Out / Committed : 664k Business Gateway Plus : 90k Budget Available (as at 31 October) : 18k 5.2 OHSBAS is almost fully committed and is due to end shortly. OHSBAS loan repayments are added to the RLF pot and this will continue over the next seven years as loans are repaid. 5.3 Since the approval of OHFIS by the Comhairle in September 2012, there has been a surge of interest. Eleven applications have been approved, totalling in excess of 400,000. A summary is shown below: No. of Loans Approved Loan Amount Approved Total Leverage Jobs Created/ Safeguarded Average Annual Turnover ,500 1,150, FTE 2.15m 5.4 It is clear from the above that demand for funding under OHFIS is currently outstripping supply. 5.5 Unless additional funding is secured, applications to the Revolving Loan Fund / Fisheries Investment Scheme will have to be temporarily suspended until sufficient funds flow back into the RLF from loan repayments. This could have a serious impact on the local economy if business development is being stifled from being unable to access match funding. 5.6 With the imminent closure of OHSBAS, the end of the OHFSS due to the expiry of the State Aid approval and the current situation with the RLF, there will be no further Comhairle funding available to support business start up and growth. 5.7 It is therefore proposed to seek approval for the Comhairle s contribution of up to 90,000 for the Business Gateway Plus initiative to be funded from the Revenue Match Fund rather than directly from RLF. FINANCIAL IMPLICATIONS 6.1 There are sufficient funds in the Revenue Match Fund to support the Business Gateway Plus initiative. This will enable funds to be retained in the RLF to support the fisheries sector through the OHFIS in the short term. 6.2 A further Report will be brought back to the Committee in February 2014 to consider options for future funding to support fisheries and other business sectors. CONCLUSION 7.1 The Comhairle has provided a valuable service to the local business community over many years and the economic impacts are considered significant. Two key funding streams will come to an end shortly Outer Hebrides Small Business Assistance Scheme (OHSBAS) and the Outer Hebrides Fisheries Support Scheme.

4 7.2 Across the islands, access to this invaluable source of investment from the Comhairle means that local people can create and take advantage of opportunities which enable them to continue to live and work in the Outer Hebrides, helping to support local services in fragile areas and encourage communities to thrive. This support also encourages existing businesses to grow, to have more confidence and be more competitive, expanding into new markets and creating much-needed additional employment. The local business community would be severely disadvantaged without continued access to this source of investment and match-funding from the Comhairle. 7.3 The Revolving Loan Fund (RLF) which also incorporates the Outer Hebrides Fisheries Investment Scheme (OHFIS) is almost at its limit. Approval of the proposal to fund the Business Gateway Plus initiative from the Revenue Match Fund will provide short term funding to ensure continued support for the local fishing sector. 7.4 The proposal also allows time to consider options for future funding of fishing and other sectors. A further Report will be presented to the Committee for consideration at the February 2014 series of Comhairle meetings.

5 OUTER HEBRIDES BUSINESS GATEWAY: SUMMARY OF COMHAIRLE FUNDING SCHEMES CURRENTLY AVAILABLE APPENDIX 1 1. Revolving Loan Fund (RLF) a. Micro Business Loan up to 2,000 interest-free, up to 50% of eligible costs; b. Business Loan up to 50,000 (4% secured, 6% unsecured), up to 50% of eligible costs. 2. Outer Hebrides Small Business Assistance Scheme (OHSBAS) a. Micro Business Grant up to 5,000, up to 50% of eligible costs; b. Micro Business Loan up to 2,000 interest-free, up to 50% of eligible costs; c. Business Loan up to 50,000 (4% secured, 6% unsecured), up to 50% of eligible costs. NB: This is a 4-year part EU-funded programme which is due to close at the end of this year but due to the budget being almost fully utilised may close sooner. 3. Outer Hebrides Fisheries Support Scheme (OHFSS) a. Loan Guarantees - in partnership with the Royal Bank of Scotland - of loans up to 100,000 for the purchase of fishing vessels and gear to first-time skippers under 40 years old. NB: State Aid approval for this scheme expires 31 December 2013; therefore the scheme must be closed-off as of this date. 4. Outer Hebrides Fisheries Investment Scheme (OHFIS) a. Commercial loans of up to 100,000 (from the Comhairle s Revolving Loan Fund) for the purchase of fishing vessels and gear - originally aimed at existing skippers over 40; NB: Due to the imminent closure of the OHFSS, this scheme will also be opened out to include first-time skippers under Inter-Island Business Development Scheme (IBDS) a. Grants on a reducing scale on commercial vehicles using inter-island ferry routes. NB: This scheme will cease once RET is extended to include inter-island routes anticipated to be sometime towards the end of the current parliamentary term. 6. Prince s Trust: Youth Business Scotland (PTYBS) a. Loans and Grants to encourage young people aged up to 30 to start up in business.