Helping the economy to rise from the ashes of recession (From The Northern Echo)

Helping the economy to rise from the ashes of recession

2:03pm Tuesday 8th February 2011 in North-East Business Features By Owen McAteer

A fund providing investment for the region’s firms is expected to take on even greater importance this year following Government cuts, as Business Editor Owen McAteer reports.

HUGH Morgan Williams is more than satisfied with the first year of a programme aimed at ensuring small and medium-sized enterprises (SMEs) in the North-East had every chance of securing funding.

“We have done what we said we were going to do and I think that’s very good,” he said.

Mr Morgan Williams is chairman of North-East Access to Finance, which last week launched its second annual guide to sources of funding available for firms in the region.

North-East Access to Finance is also the body responsible for reinvesting the “legacy” funds created by investments from the £125m Finance for Business North- East “super fund” launched in January last year.

The fund, intended to support hundreds of businesses and create thousands of jobs to help the North-East’s economic recovery, was the first of its kind in the country.

It came in the wake of a virtual freeze on bank funding for many firms in the region that would never have struggled were it not for the recession.

Mr Morgan Williams admitted that accessing finance had not become any easier for SMEs during last year, with problems remaining for companies seeking overdrafts and bank loans.

If anything, it has grown worse following the General Election and subsequent spending cuts, which have seen other funds go by the wayside.

It emerged last week that the Grant for Business Investment scheme, which had invested £112m in grants in the North-East between 2004 and last year, creating or protecting 25,000 jobs, had been axed by the Government.

In January, it was revealed that the £60m Tees Valley Industrial Programme (TVIP), launched in December 2009 to generate employment in the Tees Valley following the decision by Tata Steel, formerly Corus, to mothball Teesside Cast Products, near Redcar, would not make any further grants, after investing £42m.

The Government has brought in the Regional Growth Fund (RGF), but it accepts applications for a minimum of a £1m – and its first round of bids was seven times oversubscribed.

With this in mind, the Finance for Business North- East fund, which aims to support up to 850 firms creating more than 5,000 jobs with loans and equity investments during its fiveyear lifespan, is expected to become even more important this year.

Mr Morgan Williams said: “I think in terms of the banks it is no easier, because their new capital adequacy rules mean they have a limited amount of money available to lend to SMEs.

“I think it is true that that money is quite expensive, if an SME does find the money, then you are talking about – where base rates are about half a per cent – anything between eight to 12 per cent being quite normal.

“It is that kind of environment, so yes, it is difficult to get and, when you get it, it is quite expensive.

“That is a particular concern, as companies come out of recession because that is when they need increased working capital to finance projects and stock and take on new people and so on.

“I think it is going to be a particularly difficult time in the next 12 months.

“That is not necessarily Government induced, although some of the actions of the Government will make it more difficult, like the closure of the Grant for Business Investment and the number of grant schemes that are available has shrunk considerably.

“The only new scheme to be announced since the election is the Regional Growth Fund, where you have to be bidding for a million quid and not many small businesses are able to do that.

“I think there will be applications into the Regional Growth Fund on behalf of SMEs, to access money for them, but I think individual SMEs are going to find it quite tricky to get money out of the fund.”

He said he believed that was where funding such as the Grant for Business Investment would be a big loss.

“You only have to look back to see how much money was dispensed in the North-East and it was something like £35m to £40m a year – that’s a lot of money and 80 per cent of that is not going to be there and, of course, it was business specific; the money went straight to the business, so it had real impact.”

The £125m Finance for Business Pot has been split into six funds, targeting areas such as business start-ups, technology-based companies and growing smaller businesses.

The funds have invested £14m since April last year and leveraged in £16m of private sector cash; a total of £30m invested, which Mr Morgan Williams described as “pretty much according to the overall plan”.

A lot of that has gone to firms working in new technology sectors, such as Onyx Group, in Stockton, which received a £250,000 investment from the North- East Technology Fund for its service allowing companies to order computer skills and programmes on a pay-as-theygo basis.

Cell research firm Reinnervate, based at the NetPark Business Incubator, near Sedgefield, County Durham, received £500,000 from the North-East Accelerator Fund.

Mr Morgan Williams said: “There have been quite a few investments in new technology, particularly in things like medical and other innovative technologies and that is exactly what we need to see, particularly as we come out of recession because the opportunities are greatest in that stage of the economic cycle.”

North-East Access to Finance’s responsibility for the legacy funds means it supervises the returns on the investments by the Finance for Business North-East fund, which it then reinvests in other businesses.

Mr Morgan Williams said: “We are still hopeful that we will begin to have money passed through to us from the legacies of the last programmes over the course of the next nine to ten months.

“I think we will then be in a position to work out how much we are likely to get and therefore what kinds of funds we might be able to generate and match with European money or other sources to create new funds.

“I think the legacy funds are always important, but it is also interesting that the North-East is ahead of the game here and we are going to get hold of our legacy before other regions get hold of theirs and that is down to foresight from people.”

The creation of the Finance for Business North-East fund was led by regional development agency One North East.

The £125m was made up of a private investment of £62.5m from the European Investment Bank, alongside public funds from the European Union of £42.25m, and £18.25m from One North East.

Mr Morgan Williams said: “If anything, the demise of One North East has emphasised how important this programme is and we will be doing exactly the same as we intended.

“The programme is going to continue – the Government has assured us they are not going to interfere in it and, as far as we are concerned, it is business as usual.

“We will be doing all we can to assist businesses throughout the North-East region as far ahead as we can see.”