Leading business lights discuss the new landscape for accessing finance. Neil Hodgson reports
Source: Liverpool Daily Post 14th September 2011
Leading business lights discuss the new landscape for accessing finance. Neil Hodgson reports
Prospects for business funding are unlikely to change over the next three to four years – but Merseyside firms can improve their chances of securing much needed investment by improving their presentational skills for their all-important funding pitches.
That was the overview of 10 key players on the business landscape who took part in the latest LDP Business debate, sponsored by the North West Fund (NWF), on the region’s economic growth and access to finance for businesses and entrepreneurs.
Many agreed that some ludicrous lending decisions in the mid-noughties had played their part in the 2008 credit crunch, and that it is highly unlikely banks and institutions will make the same mistakes, with lending criteria now probably tighter than ever.
Andrew Moss, a director of the Liverpool Society of Chartered Accountants, said: “There were probably some daft transactions being done in 2006-07.
“Owners could sell out to a management team and gear up to the hilt, and those deals aren’t out there now.”
And Simon Cleaver, investment director with YFM Equity Partners, highlighted the hurdles that hopeful ventures must now clear for funding when he revealed that, of about 150 applications in the past nine months, only seven or eight have a good chance of completing a deal by the end of this year.
YFM is one of six managers appointed by North West Business Finance to run the NWF, which has £185m to invest in businesses by 2015.
One of the first companies to benefit from the fund was Liverpool-based Ambitious Minds, which has developed an educational game for schools to teach financial responsibility to students.
Co-founder Sean McGuire and his fellow directors derive from a financial background, but he confessed surprise at the depth and quality of information needed to access funding: “I was staggered at what was required, but, given our background, we were very fortunate that we could present our financial projections in a way that was acceptable to the funder.”
Video: Sean McGuire on how a cash injection from North West Fund works.
He believes many funding bids fail due to poor business skills, which need to be addressed: “There is a gigantic knowledge gap,” he added.
“If you want lots more young entrepreneurs with jazzy ideas coming through, I think that is why some of these funds aren’t being picked up.”
He believes it is vital entrepreneurs can access quality advice to help them clinch funding deals, and was disparaging of some of the existing services on offer, claiming too few advisors have business experience.
He said: “It’s like asking a military historian to lead a battalion into battle in all the muck and bullets.”
Rod Holmes, chairman of inward investment body The Mersey Partnership, a director of small firms funding agency Merseyside Special Investment Fund and a board member of the new Local Enterprise Partnership (LEP) which will replace the Northwest Development Agency (NWDA), agreed that the advisory sector has to up its game.
He said: “We had the NWDA with 600 staff, there was the Chamber of Commerce, Liverpool Vision and local authorities giving advice, all of which continues to an extent, but they are having to learn about the new playing field.
“There’s an issue of giving advice. There’s a lot of funding available, but it is about advising and learning to structure their bids.”
Regeneration agency Liverpool Vision deputy chief executive Mike Taylor believes advisory services such as Business Link, which has been pared down in the wake of Government cuts, were not suited to the region’s needs, and that new thinking is required on advising fledgling businesses.
Business Link was a product that was designed in the south of England and never worked properly in the North West, or Merseyside.
“What the Government did, once it started to cut back on public sector funding, was signal it wants to focus on high growth businesses.
“There’s a new entrepreneur scheme, but the bit that’s missing is the bit Business Link used to perform.”
He added: “We are working with other economic development parts of other local authorities on Merseyside to start to fill some of that gap.”
Mark Chadwick, Liverpool City Region Business and Professionals chief executive, agreed with Sean McGuire’s point on the quality of advice: “There’s an issue around education for start-ups and an issue about communication.”
But he suggested an element of complacency is also an issue.
“There’s a comfort zone people don’t want to get out of. A lot of SMEs (small to medium-sized enterprises) in Liverpool don’t want to go public or expand,” he said
And Mike Taylor argued that some entrepreneurs are simply not business people: “You can’t educate an entrepreneur to go away and do a business plan.
“You don’t want to send them on a business course, because that kills an entrepreneur.”
However, Liverpool Chamber of Commerce chief executive Jack Stopforth believes many businesses are simply biding their time and riding out the storm: “A lot of our members have got good balance sheets right now. There are a lot of businesses who are ready to grow, when they choose the time is right.
“I think we have a healthier economy than we give credit for.”
Video: Jack Stopforth discusses Liverpool Chamber of Commerce members and growth funding
David Grundy, senior advisory partner with Grant Thornton, agreed: “A lot of our clients have sorted themselves out over the past couple of years. They are actually reasonably healthy.
“Businesses are actually generating cash, but there’s a bit of a vicious circle in terms of growth. They’re very nervous of risking what they have in investing, because they have seen what can go wrong. There’s a lot of nervousness for investors, so this flat line just continues.”
But Ian Foster, regional director NatWest Commercial Banking, insisted financial resources are there to satisfy requirements, but agreed businesses are still cautious.
“We are lending. There’s £40bn of unused facilities in NatWest. We have tried to explain how to get finance from the banks, but what surprises me is the lack of SMEs that come to at these conferences.”
Andy Leach, North West Business Finance chief executive, said his team was working with banks to cover all bases in their bid to distribute their £185m pot.
“We are looking at their existing customers that maybe the banks can’t fund.”
But he warned: “It has to be the owner has to have an option of full growth that they want to take. If businesses do want to grow, they have to bite the bullet at some stage, because things aren’t going to change for the next three or four years.”
And he emphasised the tough times, adding: “Since the Second World War – I think it was the Macmillan Government – business has recognised there’s a funding gap.
“But it is probably as big as it has ever been.”
David Grundy sympathised with the banks and suggested it was time to move on: “We have spent two years kicking the banks saying they are not lending, but they are not going back to 2006-2007: if we stop bashing the banks, the corporate world will have less of an opinion on the banks.”
And Andy Leach added that it was up to business to be part of the solution, turning specifically to Mark Chadwick: “Pro Manchester is launching an SME club and maybe that is something that should be done here?
“It is beholden on everybody in the advisory, investment and support agencies to work together and help SMEs.”
Mr Chadwick responded that businesses also had to take a gamble and be more open to other funding methods: “We need to gear ourselves up.
Video: Mark Chadwick on how the professional community can help encourage growth
“We need to be supporting Andy to get that money away. It is partly down to education and communication. It can’t be the case where equity is a dirty word.
“Some owner managers need to consider equity, as well as funding from the banks. If people start their discussions in anticipation of a return of confidence, they are ready to press the button.”
Rod Holmes echoed his comments, with a brighter take on the region’s economic situation than had prevailed during much of the round-table discussion.
“We have some brilliant entrepreneurs and some very clever fast-growth businesses. These people know and can communicate with investors and big corporates. They talk the kind of jargon most bankers would not understand.
“In the middle, there are SMEs that have no growth perception, and we have to engender that. So it is time to mention the LEP. It is focused on growing the economy, and it is how we go about that.
“But, God willing, the LEP will come up with some sort of cohesion.
“The private sector is getting very well- organised and these are success stories led by the private sector, not by quangos, public organisations or the media. The issue is to build on that and accelerate.”
Log onto www.ldpbusiness.co.uk to see video interviews with members of the debate panel.
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