Law Firm Says It is Committed to Supporting SME Growth
By David Shirt
Law firm, Irwin Mitchell, has welcomed the Government’s announcement that it will provide a £300m fund to support SME growth.
Launched today by Business Secretary, Vince Cable, the scheme is the first phase of a new business bank and will see a a £300m fund invested alongside private investors to address gaps in the SME finance market.
Andrew Watson, Partner and Head of Banking & Finance at Irwin Mitchell, said: “This initiative looks as though it will make a difference and be well received, albeit that £300m can only go so far. It looks as though the financing is to be structured as a ‘co-investment’ or ‘co-lend’ arrangement, with the Government effectively partnering with a private sector lending source to provide funding jointly to SME borrowers.
“In simple terms it is akin to syndicating the risk in the loan. Rather than the lender providing 100% of the funds deployed, a percentage of the overall loan would be provided by the Government, with the risk shared on a pro rata basis. So, for example, if the business needs £500,000 but a lender is concerned for any reason about lending at that level, it could lend the money on, for example, a 60:40 basis (the maximum under the initiative is currently 50:50) with the Government.”
Discussing the impact on the SME lending market, Andrew commented: “The Government has said that the focus will be on promoting greater diversity of debt finance available to small businesses and that it hopes to encourage the growth of smaller lenders and new entrants in the market. This suggests that the ‘big banks’ will not be the conduits for getting this new liquidity into the market. This should be a boost for the smaller finance companies who have the appetite to support the SME market but who themselves sometimes struggle to access the funds that they would wish to deploy into the SME arena.”
He added: “One thing is clear though; this is not ‘cheap money’, as the Government expects a commercial return on its funds in line with normal market pricing. However, I do think the Government will receive a large number of applications for a share of the funds allocated to this scheme. The real trick will be keeping the co-investment / co-lend terms and arrangements as simple as possible so that the deal documentation and completion process is not delayed, or significantly more costly as a result of this initiative. It will also remain to be seen whether loans provided under the scheme will be under-written from a different credit perspective than is currently the case.”
Fergal Dowling, Partner and member of Irwin Mitchell’s SME Focus Group, added: “This is welcome news for ambitious SMEs looking to grow and expand their business.
“Irwin Mitchell has long recognised the importance of small and medium-sized firms to the economy at large and through our experience and understanding of our clients, we know how crucial access to funding is.
“It shouldn’t however be forgotten how important other issues are to growing a successful business. Our research has shown that SMEs require support in a whole host of areas including employment law, disputes, regulation and property. We’re committed to supporting the growth of ambitious businesses and equally determined to provide innovative solutions so they can tackle many of these in the most effective way.”