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In the SME market, banks are focused on secured lending. Deviation from this type of secured lending is usually applicable for larger SMEs, when banks may consider unsecured projection led lending for that SME undertaking a larger transaction, for example a £25m turnover business about to make an acquisition.

Many commercial equity funds are focused on real high growth business, especially those which already have existing turnover.

The conclusion is that more funds which can combine both debt and equity funding and which focus on the “S” of SME are required.  

This will allow the right solution to be deployed:

• Debt finance - if the business can support debt after perhaps a capital repayment holiday to allow the new monies to be put to good use to ultimately generate the future on-going repayments (this naturally also reduces the need to dilute shareholding at that stage).
• Equity funding - if the business is looking to grow rapidly and is focused on innovation & long-term shareholder value (or if it is too highly debt leveraged already, or the growth story cannot support debt at that stage).

These funding solutions are best delivered locally with Relationship Investment Managers.  Regional focus works to encourage general economic growth, but also allows additional focus on particular sectors, under-represented groups or those with a specific purpose, for example supply chains / productivity.

Business loans and equity solutions available via The FSE Group

The FSE Group offers funding solutions and support for all sizes of eligible SMEs. Currently there are 8 regional Funds under management, which can act as a key building block to leverage additional finance, for local SMEs. We are dedicated to bridging the SME funding gap to serve innovative, ambitious and scalable SMEs who, for whatever reason, are unable to source funding from conventional or even alternative funding channels to support their growth ambitions.

By understanding the direction and business goals of the individual SME and its clear expansion and growth plans, the business loans or equity solutions available, could enable them to make that step change to achieve the next level of growth for their business.

The Funds are supported by the likes of the British Business Bank and the LEPs / Local Authorities who have played such an important role in supporting market gap impact funding, and it is evident that the continued support of more Regional Funds is crucial to the recovery and growth of the smaller SMEs.

The power of creating smaller funds to support the community

The FSE Group’s parent entity is a Community Interest Company and it is a purpose led organisation. As a fund management business, we have a real passion and successful history in deploying and managing economic impact market gap funds to support SME growth.

The funds managed always have an economic impact purpose to them rather than a pure commercial return.  The organisation has the capability and proven track record of managing both debt and equity funding and therefore can create the right solution / combination of those funding options.

The Group promotes sustainability and has a proven track record of successfully recycling smaller funds to generate continuous economic impact.  This is shown for example, with the East of England Regional Growth Loan Scheme which is a £6.5m Fund, but over time that £6.5m has been recycled and has supported 225 businesses, agreeing more than £27.5m worth of loans and leveraging a further £75m of other finance into growth orientated SMEs. Supporting these businesses has created 1,100 new jobs with the East of England. The fund remains solid with the net assets still above £6.5m.

Complete our enquiry form to find out how we could support your business.

Words by Paul Marston, CEO at The FSE Group.

Lockdown Part II and adjusting to the “new normal”

Lockdown part II has seen our high streets and hospitality sector temporarily pause again. Restrictions have been reimposed on households meeting and the education system is staying open, but what about UK SMEs? As businesses had previously eased into the recovery period, this afforded them the time and opportunity to re-group and focus on how best to strengthen their proposition in the light of the global crisis. Here at The FSE Group, our Fund Managers have continued to provide support and advice for all of their SMEs and work with them during these unprecedented times.

SMEs remain open for business

It is true to say that the global crisis has had different impacts on UK SME’s. Whilst some have been hit very hard others have remained unaffected, and for them it really has been business as usual, some are even showing strong growth.  Having spoken with many different sized SMEs which make up the portfolio here at The FSE Group, many of them have pivoted their business model to adjust to new ways of operating, which has in turn accelerated some productivity activities and strong growth opportunities.

The months ahead will no doubt remain challenging as we continue to operate under strict conditions, but it is important to remember that UK SME businesses are both resilient and creative and will continue to find ways to alter their business model accordingly to facilitate recovery and growth.

What can SMEs do to further accelerate their recovery and growth opportunities?

What we can see is that a significant amount of debt has been taken on with the Government supported loan schemes.  However, we need SMEs to recover and then grow.  Some will have a new debt burden from just surviving, and some may have used up historically generated cash reserves (which may have been deployed for growth purposes) to just survive, and thus there is going to be an increasing funding gap.

The recent report from Sir Anthony Seldon & Stephen Welton (BGF) focussed on a cohort of businesses that have existing sales turnover of over £2.5m that are deemed to be high growth. It is correct that these larger SMEs should attract attention to accelerate their growth and commercially focussed pure equity funds should rightly be attracted to them.

However, there are many more SMEs with much lower existing sales that need to be encouraged to grow their business and to have access to support and help finding the right funding solutions. 

These smaller SMEs will typically be less attractive for traditional equity funds as their growth potential (and thus valuation and exit options) may not be as high as the larger SMEs. The growth potential is there but they could be a far more risky investment for those type of funds.

The above-mentioned report also stated that 67% of high growth businesses are based outside of London, and we agree with the importance of Regional Funds. 

In Summary

UK Plc needs SMEs to grow and prosper. The FSE Group’s regional Funds are open to support them by providing funding to eligible businesses to assist in their growth and recovery journey.  Many of the Funds have both Debt & Equity solutions and this allows the right combination of funding.  In addition, the Funds are there to support the forward looking story, ie genuine projection led funding.

The clear objective is to strengthen the potential to achieve economic growth through enterprise whilst transforming the funding landscape for the UK’s SMEs.

Words by Paul Marston, CEO at The FSE Group.