NEWS that Merseyside Special Investment will continue providing help to small firms in the region is good news for those struggling to get bank funding.

UK banks continue to insist “we’re open for business”, but the perception is that access to affordable debt finance is still severely restricted.

According to a survey published this week by the  British Chambers of Commerce (BCC), 33% of companies reported that accessing finance had been more difficult over the past three months, a deterioration on the 20% reported in June.

A further 64% of respondents to the BCC’s monthly business survey reported no change in finance availability, while just 3% said the situation had improved.

This shows, claims the BCC, that £200bn injected into the financial system by the Bank of England to boost lending has not filtered through to Britain’s small and medium-sized businesses, an assertion disputed by the banks.

So, if you’re looking for investment, what are the alternatives?

Accountant Howard Hackney has been advising small and family-owned businesses for more than 30 years.

For most of that period he worked for Grant Thornton, but last year he left the firm and branched out on his own to form Howard Hackney LLP.

He said: “The banks are talking a good game, but the reality is still very different. They remain cautious about lending to firms, and firms in turn are cautious about taking on borrowing.

“There are a number of finance options that small firms can consider. The first and most obvious one is, of course, using your own money. Friends and family may be prepared to lend to you, but I’m very cautious about advising that because there are dangers.

“People can very easily fall out.

“One area worth looking at is angel finance.

“Angels are wealthy individuals with money to invest in companies in return for an equity stake. They can also be on hand to offer good advice.

“There are thousands of angels across the UK and, unlike private equity, their investment can be open-ended. They will usually look to acquire an equity stake of at least 25% and will want a proper shareholders agreement in place.

“Angel funding will usually start at around £100,000, up to £1m.

“Private equity funds will usually start from around £250,000. They will look to cover their fixed costs and look to exit the business in three to five years.”

The Northwest Development Agency’s Finance for Business website (www. nwdabusinessfinance.co.uk) lists a number of options, including business angels and private equity funds.

Other options include the Loan Fund which provides loans of £50,000 to £250,000  available for “innovative, viable small and medium-sized enterprises” seeking debt finance.

Small Loans for Business provides loans of between £3,000 and £50,000 to new and growing businesses, charities and social enterprises.

There are also different types of grants available, including those covering research and development and capital investment for projects that aim to reduce CO² emissions.

The Government has recently launched its £75m Capital for Enterprise Fund to invest in businesses who are looking to fund business development by selling debt in exchange for an equity stake. The fund will provide equity of between £250,000 and £2m.

Business Link Northwest has also launched its Access to Finance service. This offers free advice and support from advisers, to help businesses and entrepreneurs understand the options available for accessing the finance required for business start-up, development and expansion.

Since its launch in March, it claims to have helped secure more than £40m of finance for 300 businesses and supported over 1,400 companies so far this year.

The funding has been used for working capital, new equipment, premises, product development and finance restructuring. Again, Business Link claims this has led to the creation of 1,300 new jobs and helped to safeguard more than 3,500 jobs in the region.

Gaynor Dykes, Access to Finance manager, said: “Bank funding is now much harder to get hold of. At the beginning of the year, we saw a huge demand for our service.
“We have helped many businesses access funding vital to their success which in turn will support the growth of the regional economy. 

“Calls to our telephone service show finance is still a key issue for companies, and businesses often need specialist advice to help them tackle complex finance needs. This guidance, along with one-to-one coaching, enables companies to develop funding propositions and pitch their plans to potential investors.”

Go back a couple of years and the private equity sector was getting a bad press. Its practitioners were accused of being tax-avoiding get-rich-quick merchants who would bleed businesses dry before swiftly moving on. This image was generated by one or two high-profile deals, but the day-to-day reality is somewhat different.

At a regional level, private equity funds provide vital funding and business expertise for small firms, helping them to grow and create employment.
One such fund is Aquarius Equity Partners, which has just achieved the first close – first round of fundraising – on its third fund, the Aquarius Origin Fund.

The firm refuses to say how much the first close has raised, but its eventual target is £7.5m.

The fund is targeting innovative, high-growth potential companies, particularly those with valuable intellectual property, based predominantly in the north of England.

It is funded by high net-worth individuals and has already made its first investment into Manchester-based drug development company, Conformetrix.

Liverpool-born founder and chairman of Aquarius Equity Partners, Steve Sealey, said: “I am delighted to have reached first close of the Aquarius Origin Fund in such a short period of time. It proves to me that there is an appetite from private investors to become involved in the asset class of venture capital.”

Also recently launched by the partners of Warrington corporate finance firm, Dow Schofield Watts (DSW), is the PHD Equity Partners Fund. The fund, chaired by Lord Daresbury, raised just under £5m and has already made two investments.

DSW partner Andy Dodd said: “Our sweet spot for the level of investment is between £250,000 and £750,000, and we will consider investing more than that.

“The fund is opportunistic and we are prepared to look at all sectors. But the business case has got to stand up. There are a lot of potential deals to be done out there. Since we launched, the volume of enquiries we have had has been very high, although a lot of the quality has been low. We have only really seriously considered around 10% of those who have come to us.”