Finding the cash for a Powerhouse
It has never been easier to start a business. The rapid development of communication technologies has enabled every one of us to market products and services in ways which were not available to previous generations.
It has also never been more important for our region to support the start-up of new businesses to make the Northern Powerhouse a reality and thereby rebalance and grow the national economy.
Starting businesses may now be relatively easy. Scaling them beyond providing a lifestyle business for the founder is more challenging. We need businesses that keep growing, thereby becoming employers, requiring commercial partnerships and suppliers and creating wealth in our region.
Access to finance can be a considerable obstacle to growth and businesses need to be aware of the range of sources of funding as they look to grow.
The government is often attacked for providing insufficient support for growth in the North, but there are a range of government supported or enabled sources of funding available.
The British Business Bank is a government owned business development bank with a specific remit to help make finance markets work better for smaller businesses. It provides support at start-up and scale-up level and to businesses looking to stay ahead. The British Business Bank does not invest directly but through more than 100 specialised lenders and investors including banks, investment funds and leasing companies.
The range of products includes "help to grow" loans, Enterprise Finance Guarantees for companies with insufficient collateral to support traditional borrowing and Enterprise Capital Funding, which provides co-investment alongside private money.
In our region, the British Business Bank and 10 Local Enterprise Partnerships from the North West to the Tees Valley have collaborated to establish and operate the Northern Powerhouse Investment Fund (NPIF), providing micro-finance, debt and equity finance funds.
The government continues to support the now well established Enterprise Investment Scheme (EIS), which enables individual companies to raise up to £5m a year (from individual investors who get the benefit of significant tax reliefs). EIS's younger sibling, the Seed Enterprise Investment Scheme (SEIS) fills what was perceived to be a need for finance for very early stage (and therefore higher risk) companies. Investors can invest up to £100,000 per annum through SEIS and receive tax reliefs of up to 78% of the amount invested.
Given the extent of these reliefs, the IoD has previously raised the question of whether the schemes should be more widely used and promoted. They are presently largely the preserve of high net worth and sophisticated investors. Investing in single companies is undoubtedly very risky. However, there are now many SEIS and EIS funds, which pool investors' money and use it to invest in a range of different companies, thereby spreading the risk across a portfolio.
Given these funds must operate with a Financial Conduct Authority approved fund manager as part of the set-up there is a case, subject to additional safeguards, for widening the investor base. Such a move could provide a significant additional boost to the amount of finance available to businesses in the region, which will then help to drive the Northern Powerhouse forwards.
Taking the above, along with tax breaks for investors in venture capital trusts, entrepreneurs' relief which gives a low rate of capital gains tax on the sale of businesses, research and development tax relief, the relatively new social investment tax relief (similar to EIS but for not for profit organisations) and the availability of government backed personal loans up to £25,000 per individual (£100,000 per company) the government is, in the scheme of business finance at least, doing its bit. The rest is down to us.
Jonathan Oxley, Northern Powerhouse Ambassador and former regional chairman, Institute of Directors
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