Local government update

Supporting growth in local enterprises is good for the economy, both nationally and locally. And a range of government access-to-finance schemes is now available, through local enterprise partnerships and some local authorities. Many have been funded from the Regional Growth Fund under section 126 of the Housing Grants, Construction and Regeneration Act 1996.

A lot of the schemes are aimed at creating and safeguarding jobs, providing business support, skills development and apprenticeships and providing investment in infrastructure to help businesses perform better. This is very much in line with the economic development strategies ?of those local authorities who have taken up ?the opportunity to support growth in their ?local enterprises.

The challenge for those who haven't taken?up the opportunity yet will be making sure that the scheme meets the business needs of their local community. There are various funding ?types for small enterprises, such as grants, structured loans and equity, but not all of them provide a continuous stream of finance to ?support business growth. Business owners, therefore, often experience what they call, the 'funding gap'. The most critical current issue for small businesses is funding working capital so they can win new contracts.

Funding can come from internal resources and, of course, from central government. Raising the funds is not easy by any means. Designing and delivering a scheme that is fit for purpose needs to be fully considered early in the fundraising process to avoid the situation where the funds become available but delivering the programme falls woefully behind.

For those thinking about setting up a funding scheme, there are some key features that need ?to be mapped out at an early stage. The loans ?and investments have to be fit for purpose, i.e. capable of delivering the strategic objectives, meeting the individual business needs, and managing and monitoring the risk involved in making the investments.

What we have seen so far, in relation to the local authority schemes, is that all of these features can be delivered by the authority working in partnership with their local funders and those in their business community who have a track record in this field.

Typically, the schemes are aimed at businesses that are unable to raise bank finance and that need help in developing a fundable proposition. Banks and accountants can often help with this analysis, with the ultimate decision to invest being delegated to an independent panel made up of council officers, local business representatives and professional funding experts.

Risk in the investment opportunities can be managed in a number of ways, for example by taking security from the businesses, if they have any assets of value. Another means is by setting up the investment on commercial terms, making the capital repayable with interest. Other good management practices are to arrange an experienced analysis and assessment of the investment risk at the outset, and by ensuring there is ongoing monitoring throughout the life of the investment.

Standard legal documentation including security documents can be built into the ?process, alongside structures to facilitate payment, repayments, applying interest, providing bank-type transaction statements ?and default processes. Monitoring systems for ?the life of the investment can also be set up, including the production of quarterly management figures, a traffic light system ?for intervention and business support to ?avoid default.