Funding hotspots
Article Date: May 01 2004Government grants, venture capital cash and all manner of soft loans could be yours – if your business is in the right place.
Looking to change your company location? Scouting an area to open another office? Careful research could pay off.
This is because there are generous finance options in the form of grants, soft loans, equity funding and business support, all available to firms that are prepared to invest their business in certain areas of the UK.
A recent survey from Royal Mail, which analysed the business population of the UK’s top 100 towns and cities, showed that seven per cent of businesses moved location in the last year, with the North of England the fastest growing area for businesses.
What’s on offer
Certain areas in the UK have been designated ‘Assisted Areas’, meaning they have relatively low levels of economic activity and high and persistent unemployment.
If your business is located in or considering relocating to these areas, you can access financial support from the Department of Trade & Industry (DTI) and Regional Development Agencies (RDAs) through the Selective Finance for Investment in England programme (previously know as Regional Selective Assistance). The greater the Assisted Area’s gains in productivity and skills, the higher the support that may be offered.
The funds offered will normally take the form of a grant, or occasionally a loan, and can be offered for the following:
• Launching a new business
• Modernising, expanding or reorganising your existing business
• Upgrading your business: introducing technological, or other innovatory improvements into your manufacturing or business process
• Taking a new product, service or process from the development stage to production
There are also various other schemes available, such as Regional Venture Capital Funds (see below for further details) and projects run by English Partnerships, the Government’s national regeneration agency (www.englishpartnerships.co.uk).
You can also expect generous support in locations that are identified as ‘Objective 1’, meaning they are areas that are particularly deprived. These include Cornwall, the Scilly Isles, Merseyside and Wales (with the exception of Cardiff and Mid Wales).
Take Wales as an example: the Welsh Development Agency (WDA) points to incentives to relocate there, such as its low-cost, but highly skilled and productive workforce, its good transport links to the rest of the UK and Europe, and a proliferation of new commercial property. The WDA’s specialist team helps those opting for Wales to identify sources of financial assistance and will work with them and the relevant institutions to secure funding. The main capital investment grants available in Wales are Regional Selective Assistance (RSA) and Assembly Investment Grant (AIG). Both schemes are administered by the Welsh Assembly Government.
It’s not money for nothing
If you are eager to tap into such opportunities, you need to be aware that certain criteria will have to be met.
According to Nigel Lander, a specialist finance adviser at Business Link for London, RDAs tend to have modest sums of funds available for people who have exhausted all other routes. His advice is to contact the various RDAs direct and see what is available – this may sound very basic, but he believes that too many people go for funds that are not available and end up wasting everyone’s valuable time.
Moreover, according to the DTI, if you are seeking support of £100,000 or more your project must create new jobs or safeguard existing employment. The greater part of your project’s funding should be provided by your business, or by, for example, a bank or hire purchase/lease finance schemes.
Don’t take a narrow view
Lander has two other handy pieces of advice for businesses thinking of relocating for funds. He says ‘one has to be certain that there are sufficiently skilled employees, that you are prepared to move and that the move makes sense in terms of the market for your business. As an extreme example, there is no point in locating to Liverpool if your commercial interests are mainly in France. People who actively move only for the money are taking a narrow view.’
Geraldine McEntegart, of the Merseyside Special Investment Fund, which was set up in 1996 to provide SMEs with loans and equity packages of between £3,000 to £3 million, echoes this view.
‘A business that is expanding or relocating to the area would be eligible to apply if it was preserving or creating jobs on Merseyside, but we do look at other criteria. You can’t have the bulk of your work in Birmingham, for example, and one token person in Merseyside,’ she affirms.
Weigh up the pros and cons
It’s fair to say that you shouldn’t be fooled into thinking that raising regional finance is any easier, or less time-consuming than approaching other funding routes.
‘If you’re going for a ‘soft’ loan then the process can be quite quick. But if you are looking for equity from a venture fund, the criteria can be quite tight,’ advises Lander.
He adds that the number of deals so far from RVCFs is not vast but nonetheless it’s an option worth investigating. But whether you go for grants or equity funding, weigh up the pros and cons.
‘I do know of a business that relocated from Teddington in London to Sheffield, because labour and funding were available. But there were costs incurred – the company had a long lease that it had to pay to break. Measure the costs of moving against the benefits of the new location,’ counsels Lander.
Case Study 1 - Relocation to Wales pays off for Provalis
Healthcare company Provalis, which deals with research, diagnosis and treatment of disease, needed support to help automate the manufacture and supply of its diabetes testing kits.
Provalis had a small office in Wales, just 200 yards into the border, but when it secured a £1 million grant, from the Welsh Assembly in February 2003, it decided to expand the production of its medical testing kits at this base in Deeside, and consolidate the business there. Payment of the grant was linked to capital expenditure and employment creation.
‘We looked at other ways to raise money to help our manufacture and supply, and other places where we could be based, but this seemed the best thing to do. We cemented our position in Wales for manufacturing, which has enabled us to consolidate our cost base. ‘Staff have been delighted to move here – the quality of life and cultural possibilities are attractive options,’ believes chief executive Phil Gould.
But as with any fundraising process, time is a major factor and planning ahead should be your first concern.
‘We had to consider factors such as whether we could get the right mix of people here. We could have chosen to expand elsewhere, either China, the US, Hungary or Barbados and we had a strong bid from North Carolina to go there [Provalis’ biggest market is in the US]. But one of the reasons we didn’t choose that was because of the time it would take to adjust. If you are looking for regional finance, spend some time getting to know the area well, rather than just jumping for a location. You only get one shot for the funding,’ advises Gould.
Case Study 2 - Funding from the last resort
Founded in 1998 by Richard Stubbs, UK Explorer provides wired and wireless internet access solutions aimed at the hospitality and travel industries. It employs 14 people, has a turnover of just over £1 million and recently raised £250,000 from the Capital Fund, the regional venture capital fund for London, managed by London Fund Managers.
‘The issue that we’ve had in the past is that we are not large or ‘techy’ enough to excite the larger venture capitalists, and we are too ‘techy’ and seem risky to others – effectively falling through a hole. We tried on a regular basis to attract funding but without any success, then we came across the Capital Fund,’ explains Stubbs.
UK Explorer approached the Capital Fund in August last year and secured funding in March 2004. Stubbs puts his success down to the fact that the industry is now changing in his favour, and the fact that the business is cash-generative – a claim that few technology companies can make.
‘Our growth has been somewhat restricted by our ability to fund the demand we have seen. We now have the freedom to aggressively market our solutions and roll out at a pace unrestricted by funding constraints,’ believes Stubbs.
Case Study 3 - Investing in sales and staff growth
Merseyside Special Investment Fund invested almost £1 million in the management buy-out of St Helens-based HQC, which produces hardware and provides assembly services to the telecoms and data networking industries.
The company began trading in 1996. Turnover is around the £4 million mark and there are 50 staff employed in premises in Haydock. It is expected that the cash injection will contribute to a 25 per cent growth in sales and staffing levels over the next three years.
‘We have exciting plans for HQC, and this investment, coupled with an experienced and highly-skilled workforce, means we are now ideally positioned to enter a new phase of development,’ believes managing director Keith Parkes.
Tapping into Regional Development Agencies
RDA Contacts
East of England, Stephen Holton (01223-200842)
East Midlands, Jeff Moore (0115-988 8331)
London, Jody Chatterjee (020-7954 4600)
North East, Neil Mundy (0191-261 2000)
North West, Vivienne Upcott-Gill (01925-400 301/2/3
Northern Ireland, Bernie McGrath (028-9069 8588)
Scotland, General Enquiries (0845-607 8787)
South East, Sally Goodsell (01344-751612)
South West, Steve Richards (0117-933 0274)
Wales, Client Services Division (01443-845 500)
West Midlands, Mary Martin (0121- 380 3500)
Yorkshire, Alex McWhirter (0113-243 9222)
Need to know - What are regional venture capital funds?
Regional Venture Capital Funds (RVCFs) provide risk capital of up to £500,000 to small- and medium-sized enterprises that demonstrate growth potential. Each fund operates within a regional boundary in England and can invest up to £250,000 in equity or debt to start-ups and early-stage companies, or those needing development capital for either an acquisition or organic growth. Management buy-outs and buy-ins are also eligible.
A business can apply for equity finance to the fund covering the area in which the head office is situated, or where it carries out a material part of its business and where the purpose of the relevant investment is. In addition, the application of the proceeds of the investment should be predominantly related to, or for the benefit of, the region.