There comes a point in the life of every business where you need access to extra funds to invest in growth and expansion plans.
Business finance comes in various forms, but can generally be divided into two camps. Debt financing covers all forms of lending where there is an obligation to pay back the money borrowed, usually with interest added on top. Equity financing, on the other hand, involves an exchange of capital in return for a stake in the business. Types of equity financing include private equity, venture capital, angel investments and crowdfunding.
Equity financing is more suitable for sourcing larger sums because it doesn’t saddle a business with repayable debt. But sourcing equity finance can be challenging, especially for SMEs and businesses operating outside London. It’s a highly competitive field. While debt financing boils down to buying a product, securing equity investments is a matter of persuading would-be backers that your business will deliver good returns on their stake.
Then there’s the issue of finding potential backers in the first place. Much equity financing is channelled through investment funds, which are professionally managed to secure the best possible returns for investors. UK-based investment funds are heavily concentrated around the City, leading to a regional bias that sees London account for half of all deals and two thirds of total equity investment value in the UK.
That can lead to businesses elsewhere struggling to find the right kind of investment to fund their ambitions. Relying on debt financing can make it difficult to source enough capital, putting an artificial ceiling on growth. Or else rising debt repayments can hamper growth by eroding margins.
Regional investment funds
There are investment funds that are set up specifically to look beyond the boundaries of the capital and surrounding southeast region and make equity finance available to a broader range of businesses, especially SMEs.
The best known of these are the government-owned British Business Bank’s Nations and Regions Investment Funds. Launched in 2017 with the headline-grabbing Northern Powerhouse fund, the British Business Bank now runs similar schemes for the South West and Midlands, as well as national funds for Wales, Scotland and Northern Ireland. The funds are all aimed at financing growth opportunities for smaller businesses through a mix of small business loans, debt financing and equity funding typically in the range of £5 – £10 million.
Various private investment houses also offer regional equity funds targeted at SMEs. These include The Foresight Group, which has schemes in Scotland, the East of England, the Midlands and Nottingham, plus a shared fund covering the North West of England, North Wales and South Yorkshire. Maven operates a total of six funds offering a blend of debt and equity finance across Scotland, the East Midlands, South West, and the North East of England. British Business Investments, meanwhile, runs a government-backed Regional Angels Programme that provides early stage equity finance for small businesses across the regions.
To find equity and other financing options in your area, run a search on the Government’s business finance support webpage. You can also contact your local Chambers of Commerce and other business groups and trade organisations. Or, get in touch with Xeinadin, and we will match you with a business finance specialist in your area.
