David Cameron: Conservative Government will create Help-to-Grow scheme to provide launchpad for small firms
A future Conservative Government will help Britain’s fastest-growing small firms get the finance they need to grow and create new jobs, David Cameron announced today.
In a speech to the British Chambers of Commerce annual conference, the Prime Minister unveiled Conservative plans to plug the £1bn funding gap in finance for thousands of businesses with a turnover of up to £25million.
As part of the Conservative’s long-term economic plan, the scheme will be overseen by the British Business Bank and will enable small businesses across the country to expand and employ more people.
Speaking at the BCC Conference today, David Cameron said:
‘Too many fast-growing businesses still find it hard to access finance.
‘I’m thinking particularly of those wanting to grow, who have established themselves and want to take that next step to becoming a medium-sized business, but cannot.
‘But as we see in countries like Germany, with their Mittelstand of strong, well-financed, medium-sized businesses – this is where a lot of the growth and jobs comes from. ‘Indeed here in the UK, 45 per cent of the job growth has come from our fastest growing medium-sized businesses. ‘Their businesses – your business – are the country’s job engine. ‘But they often struggle to get the finance they need to grow. ‘We need to think strategically about helping those small firms over the ‘valley of death’ funding gap so they can become medium firms and the medium firms can become larger firms. ‘That’s why I have an announcement to make today. ‘The next Conservative Government would launch ‘Help to Grow’ – a new financing scheme to help us grow our businesses. ‘To help them get finance. ‘To walk safely through the financial ‘valley of death’. ‘Our ambition is to help 500 of our fastest growing firms annually – giving entrepreneurs the access to the kind of finance their German equivalent would get. ‘The Business Bank I set up has found the finance gap is likely to be up to £1billion per year. ‘1billion of opportunities – lost. ‘1billion of new investment – missed. ‘We will plug this billion-pound gap by using the Government’s balance sheet to guarantee loans by private lenders, or by co-investing public money alongside private money.
‘To test the best model for the Help to Grow scheme, I can announce that the British Business Bank will start a pilot scheme at the Budget with at least £100million of new lending. ‘This will allow us to get the best possible programme up and running if a Conservative government is formed after the Election. ‘I want Britain to have its own version of the German “Mittelstand” – a backbone of medium-sized firms which export, innovate, generate new jobs and with our Help to Grow scheme, we will be there to back you.’
The British Business Bank will run a £100million pilot scheme to discover the best way to run the new help-to-grow proposals.
It will focus on two alternative approaches. First, funds that would co-invest private money alongside public money, drawing on the to the BBB’s experience of running its highly successful Enterprise Capital Funds programme. Second, funds that would invest private money supported by a structured government guarantee to encourage increased lending. Small and medium sized businesses are vital to the UK economy, and are major drivers of employment and innovation. The 1,000 fastest-growing medium-sized businesses in Britain generated £158 billion in revenues last year and accounted for 9.2 per cent of GDP, a new report has found. This is up from 7.9 per cent of GDP in 2011. Over this period, these companies increased headcount by 182,000, equal to 45 per cent of the UK’s job growth.
The current Conservative-led Government has already taken a number of steps to help improve the finance available for firms, including:
- Establishing the British Business Bank to make finance markets work better for smaller businesses. It has facilitated a total of £1.45bn of new lending and investment in the year to end September 2014, to over 21,000 businesses, and is on track to unlock up to £10 billion of new finance over the five years to 2017/1
- Rolling out a Start-up Loans programme which supports entrepreneurs looking to start their own business with a start-up loan of up to £25,000, over up to 5 years. Over 25,000 loans totalling over £130m have been made since April 2012.The Bank of England’s Funding for Lending Scheme (FLS) has helped to reduce the funding costs of banks and building societies so that they can make loans cheaper and more easily available.
- At Autumn Statement 2014, the scheme was extended by a further year, to January 2016, to focus on smaller businesses; Introducing the first-ever Small Business Bill which has improved competition in the SME lending market by requiring banks to share more information on their SME customers with other lenders
- Launching the Future Fifty programme to accelerate the development of growth-stage companies through bespoke support programmes across government and the private sector. The current Future Fifty company cohort employs over 15,000 people and has generated over £2bn in net revenue.
Both larger and the smallest and earliest stage companies have been well served by these reforms. But there is a recognised market gap in the middle for small growing firms, particularly those seeking finance between £0.5 million and £2million. Business Bank research shows that the UK growth capital market is very small, with a number of structural market failures affecting both the supply and the demand side restricting this market from becoming established.
It is estimated that there are around 16,000 fast growing businesses with a turnover of up to £25m which struggle to finance their growth and do not wish to give up equity. Business Bank market testing indicates at least 500 such businesses would benefit from investments of between £0.5m and £2m each year but currently access suitable growth finance, a £1bn per year market gap overall.
John Longworth, Director General of the British Chambers of Commerce:
“Help to Grow’ could be the start of a sea change in business finance in Britain. Currently, too many of the UK’s most dynamic businesses don’t live up to their growth potential, due to a lack of patient growth capital. ‘Help to Grow’ could help more British firms scale up, rather than sell out – making it more likely that one of today’s small companies becomes the British Google, Samsung, Siemens or Tata of tomorrow.”
Joanna Shields, Chair of TechCity:
“Britain’s high growth firms have the potential to contribute significant economic growth and job creation yet access to capital is a key factor limiting their potential … ‘Help to Grow’ will open up more routes for growth finance to support our highest potential businesses in the UK on their journey to becoming world-class leaders.”
Eileen Burbidge, Angel Investor and Passion Capital partner:
“Given the significant increase in early stage funding options over the last few years, Britain is fast becoming the best place in the world to start a new business. “Help to Grow” will fortify the next stage of business expansion and success — by supporting companies through their fast hiring and turnover growth phases.”
Brent Hoberman MBE, entrepreneur, and chairman of founders forum and made.com:
“This new source of funding for small businesses is further recognition of their importance to the British economy. Helping these companies raise more will flow through to benefit many thousands in the UK through the exciting jobs that these growth companies will now be able to create.
Mark Florman, Investor and former head of the British Private Equity and Venture Capital Association:
“Getting finance to Britain’s growing firms will be crucial for them to expand, invest and take on more employees and apprentices. David Cameron’s ‘Help to Grow’ initiative will go a long way to help them.”