There are gaps in the funding ladder preventing medium-sized businesses (MSBs) in the North West from realising their growth ambitions, according to the new report by the CBI and accountancy and business advisory firm BDO.
Since the economic crash of 2008, there has been improved bank lending, an increased flow of invoice finance facilities and huge growth in peer-to-peer lending over the last few years. This gives cause for the belief that much of the finance landscape is on the mend.
However, for many small and medium businesses – particularly in areas like Manchester – these are mainly short-term funding options, and the availability of long-term growth capital remains an issue.
According to the new CBI/BDO report ‘Stepping up: fixing the funding ladder for MSBs’, more than half of MSBs are finding it hard to access a loan for longer than five years. The CBI and BDO are recommending ways the Government can offer tax incentives and encourage long-term debt and equity investments to help growing firms realise their full potential.
The so-called ‘forgotten army’ of the North West, mid-market firms represent just 2% of all companies but generates 28% of revenues and makes up 24% of the regional workforce, according to CBI research. A huge 70% of these businesses are planning to grow in the next year.
Damian Waters, CBI Regional Director in the North West, said: “Building up a British ‘Mittelstand’ of successful medium-sized businesses is mission critical to our economic future.
“A key part of unlocking their enormous potential is for the Government to fix the funding ladder, filling in the gaps in the supply of long-term finance that the North West’s brightest growing firms need to succeed.”
Ruth Percival, M&A partner at BDO in the North West, said: “Medium-sized firms lack diversity in long-term funding sources; yet it is the mid-market that is fundamental to creating a balanced and sustainable economy. We are not trying to reinvent the wheel. Instead we’re suggesting an innovative adaptation of existing channels.”
CBI and BDO are calling on the Government to create new Long Term Lending Trusts (LTLT), which would extend tax incentives to investors that are willing to commit to providing long-term debt for at least five years – a similar way to the Venture Capital Trust scheme.
They are also recommending changes to the way the Enterprise Finance Guarantee works by rewarding lenders for providing longer-term loans, allowing AIM-listed companies to raise more capital from existing investors without the need to produce a prospectus, and an investigation into the Government’s ‘Business Tax Road Map’ to discover where it can boost the use of equity finance by growing businesses.