Category Archives: News

Alternative Finance and its role in SME growth | Midven

Alternative Finance and its role in SME growth | Midven

The UK is creating unicorns at a rate of 1 per month, but plenty of other high-quality opportunities are missed as investors chase these hugely valuable listings. Of the 600,000 start-ups founded each year, less than half of these survive longer than 3 years.

With a recent report stating that traditional methods of financing are insufficient and SMEs need to consider other methods, and with the alternative finance market growing rapidly over the last couple of years, we might well have reached the point that SMEs should start looking at Alternative Finance as the best option for growing their business.

As a venture capital business, we would say this wouldn’t we. So what do the facts say

The government is pushing Alternative Finance

In February of this year, in an attempt to fill the gap and in the face of what appeared to be the UK’s imminent exit from the EU, UK Finance launched the ‘Let’s Talk Business’ campaign. This initiative called for all businesses, both large and small, to prepare for the change (positive and negative) that they would have to face after the UK’s departure from the European Union. As part of the campaign, small and medium enterprises (SMEs) were encouraged to discuss and consider the sourcing of Alternative Finance.

The banks are increasingly risk averse

SME finance is a crucial area when it comes to the growth of small business throughout the UK. Whilst the ‘one in a million’ business may be able to grow organically without any outside funding, most will require some form of capital injection to either spark this growth or accelerate it. However, SMEs often encounter difficulties in sourcing finance through conventional routes, a problem that has only been exacerbated by the uncertainty surrounding Brexit. After all, high-street banks are becoming increasingly cautious over lending money to any business that they deem to be ‘high risk’. In fact, bank finance to SME’s is forecast to fall by 15% over the next five years.

Entrepreneurs are driving the Alternative Finance Agenda

As a result of these limitations, and following on from this year’s initiative, entrepreneurs are increasingly looking to Alternative Finance such as venture capital, crowd funding platforms and peer to peer lending in order to grow their business. Since 2017, the total value of the Alternative Finance market increased by 35% to £6.2 billion, suggesting that Alternative Finance options are certainly worth considering for many businesses.

What options are available?

There are a number of options that SMEs can research when it comes to sourcing Alternative Finance. The most suitable option is ultimately dependant on the business itself, with funding primarily falling under one of two categories – equity finance or debt finance.

Equity Finance

Equity financing is the process of raising capital through the sale of shares. Companies will often pursue this option during the early stages of their growth, particularly when the company does not have sufficient revenues, cash flow or hard assets to act as collateral. Equity financing can attract capital from early stage investors as they are willing to take risks alongside the entrepreneur with the attraction of a greater return in the long-term.

Later stage companies can also attract equity finance. When a company is established and has assets and cash flow, or has the promise of high growth due to new technologies or new markets, it can raise substantial capital as additional investors seek to support the anticipated growth without the associated risks of early stage investing. A 50% explosion in equity finance is forecast to occur over the next five years.

Some examples of providers of equity finance include business angels, venture capital firms, crowdfunding platforms, and more broadly, the stock market.

Debt Finance

Another option for SMEs to consider is debt finance from alternative providers such as peer to peer platforms. As interest rates have fallen, new lenders have entered the market.

Peer to peer platforms began as ways of matching companies with individuals that wished to lend to them. However, they are becoming much more common place within the financing community, now raising money from institutions (such as the government, or pension funds) and then lending it to companies.

Some peer to peer platforms specialise in financing particular assets (e:g sales invoices, one at a time), others specialise by taking risks (e:g the provision of unsecured lending) that banks are unable to do.

What options do Midven provide?

Venture capital is an excellent alternate route for raising finance and many small businesses are beginning to realise the benefit of the opportunities that it brings. 44% of business owners now say they would be willing to issue equity in return for financial support (up from a figure of just 12% in 2013). Midven provides equity finance to SMEs and currently has two venture capital funds which are actively seeking investment opportunities: the Greater Birmingham Enterprise Investment Scheme Fund (GB EIS Fund) and the Midlands Engine Investment Fund (MEIF).

GB EIS Fund

The tax incentivised EIS scheme is a key route of finance for SMEs looking for investment. Since its inception in 1994, EIS has raised over £20 billion from individuals, and funded just shy of 30,000 companies.

With the majority of investment (62%) taking place in London and the South East, the GB EIS fund was established with the aim of utilising Midvens’ unique market position, in-depth regional knowledge and investing experience to exploit the untapped potential of the West Midlands region. As the city with the highest start-up to population ratio, there are increasing numbers of opportunities, and with an entry point of £20,000, the fund will give more individuals access to the option of supporting the fantastic range of small businesses that exist in the Midlands region.

MEIF WM

Alongside the GB EIS fund, Midven also operates the £35 million MEIF West Midlands Equity Fund.

MEIF WM is a widely publicised fund both regionally and nationally and aims to spread awareness of the equity finance available to SMEs in the West Midlands. Having currently invested over £6 million into 15 different portfolio companies, the fund is always looking for established businesses with ambitious plans and high growth potential.

Conclusion

The health and wealth of SMEs directly affects the state of the UK economy. SMEs make up around 98% of businesses in the UK private sector and contribute £1.9 trillion each year towards the economy of the UK. Furthermore, the sector accounts for the employment of around 16 million people in the UK. A system lacking in the appropriate level of Alternative Finance would see wide-ranging detrimental effects. Thankfully, whilst the disparity associated with high-street bank loans has increased, the amount of Alternative Finance available has continued to increase year-on-year, bridging the gap and ensuring the continued growth of the UK as an epicentre for start-ups.

 

Surjit Kooner

Midven

A guide to attending tradeshows | Department of International Trade

A guide to attending tradeshows | Department of International Trade

Trade shows and fairs offer businesses an unmatched opportunity to connect with other businesses and uncover new leads. With thousands of shows and conferences held around the world each year, there are plenty of events for your business to get involved in, regardless of sector. Platforming at these shows enables you to showcase your brand… Continue Reading

Call for Applications: Enabling Technologies and Innovation Competencies Challenge Project

Call for Applications: Enabling Technologies and Innovation Competencies Challenge Project

A call is now open for applications for Enabling Technologies and Innovation Competencies Challenge project, part-funded by the European Regional Development Fund (ERDF) aiming to tackle a range of challenges by supporting companies using Key Enabling Technologies (KETs) to develop new innovative products and services. KETs include: photonics advanced materials micro and nanoelectronics nanotechnology industrial… Continue Reading

Filing accounts at Companies House

Filing accounts at Companies House

With 300,000 sets of accounts being due this month, September is one of the busiest months for us at Companies House. Many companies will have an accounting reference period which ends on the last day of the year. This means the last day to file their accounts is 30 September. Every company must prepare accounts that… Continue Reading

Now is the time to grow, faster | Festival of Enterprise 2019

Now is the time to grow, faster | Festival of Enterprise 2019

Strategy can be sidetracked in the day to day running of a business, and scaling up takes the back seat as you end up dealing with piles of paperwork, projects going wrong or dealing with your overflowing inbox. This shows in the statistics – according to the ScaleUp Institute, scaleups bring in £1.3tn of the… Continue Reading

8 Tips to Stop Stressing about Cashflow | Ralph Savage

8 Tips to Stop Stressing about Cashflow | Ralph Savage

If you’re struggling to manage your cashflow, make sure you take a look at our FREE finance workshop from 8:30am on the 11th September, click here for further details. In the meantime, here are some suggestions for stopping the stress from taking over, and putting you back in control when your business is going through… Continue Reading

Firms urged to reduce risk as Brexit deadline looms | WMCA

Firms urged to reduce risk as Brexit deadline looms | WMCA

Business leaders across the West Midlands are urging employers to reduce their exposure to risk in the event of a no-deal Brexit. A report, based on responses to the Business Brexit Health Check, has been designed to produce bespoke information for businesses, highlighting areas of their operations that are exposed to Brexit-related change, tips on… Continue Reading

Let’s talk about EORI numbers and trading after Brexit…

Let’s talk about EORI numbers and trading after Brexit…

VAT Registered Companies will now be auto-enrolled for an EORI number National Government has recently announced that the HMRC will allocate more than 88,000 businesses with an Economic Operator Registration and Identification number (also known as an EORI number) within the coming weeks. This aims to double the current number of businesses with an EORI… Continue Reading

Copyright © 2019 Black Country Growth Hub

Need help?
Leave your details and someone will be in touch with you shortly.
X