How the Regional and Business Growth Funds can help your business grow
Two major new funds supported by HSBC have been launched to stimulate growth amongst UK businesses. But how do the Regional Growth Fund and Business Growth Fund work, and how do businesses apply?
The Regional Growth Fund
Medium-sized firms received a boost in November following the Government's announcement that £95 million of the Regional Growth Fund (RGF) - set up last year to stimulate private sector investment - would be specifically allocated to small and medium-sized businesses.
Previously, money from the £1.4 billion RGF fund was only available to firms and public/private sector partnerships bidding for funding of £1 million or more. The idea behind the RGF is to 'unlock' investment in projects and programmes with potential for long-term growth and private sector employment. This might include investment in R&D, training or productivity-boosting technology. Funding is targeted particularly at regions where private sector investment is relatively low.
But now businesses who aren't ready to invest on that scale can apply for any amount up to £500,000. The Government hopes the money will help create more than 4,000 jobs and unlock a further £500 million through private investment. A key aim is to support firms that would otherwise struggle to access normal bank lending because they can't afford the deposit required to access lending for capital assets, for example.
How the RGF works
The £95-million pot is essentially grant finance, with money intended to act as a deposit for commercial asset finance operated by banks. In other words, eligible businesses can apply for a RGF grant, which will be awarded alongside a normal bank loan. The main condition is that firms must put the money towards a physical asset, such as equipment.
Money will be directed to firms through HSBC and two other high street banks, none of whom will profit financially from the initiative. HSBC itself has £25 million to distribute through its 'Assisted Asset Purchase Scheme'. The funding will effectively act as the deposit for a loan for an asset that generates employment.
Mary Timothy, senior commercial product manager at HSBC, says the scheme will provide "critical support" for firms looking to grow. "The RGF grants will be invaluable for businesses who can afford to repay some asset finance, but have too little cash to meet the deposit criteria," she says.
Borrowers will need to be able to demonstrate that they can repay the loan element, she adds, and the bank is likely to look at various factors, including future financial performance as part of its decision-making process.
Applying for funding
To apply for RGF funding through HSBC, Timothy advises firms to speak to their commercial relationship manager. Medium-sized firms may qualify for a grant of up to 10 per cent of the value of the asset; small firms can qualify for grants up to 20 per cent.
While grants are capped at £500,000, certain areas hit by major public sector job losses or areas of low investment, such as Cornwall, for example, may be eligible for a large percentage of the asset purchase price.
The Business Growth Fund
The Business Growth Fund (BGF) is a major £2.5 billion equity investment fund backed by the main five high street banks, including HSBC. Set up to help fast-growing smaller businesses that lack sufficient capital to develop, the key criteria is that applicants must be able to show serious growth potential. In return, investment of between £2 million and £10 million is available, and the BGF will take a minimum 10 per cent equity stake and a seat on the board.
Funds can be used in a variety of ways, from increasing working capital and boosting exports to new product development. According to BGF's head of investments, Richard Bishop, one of the advantages of the BGF for growing firms is that it provides equity, rather than debt.
"As equity investors we can look to the longer term prospects of a company and ensure it is properly capitalised," he says. "Equity investment is a critical part of the funding mix, and an alternative that we would encourage fast-growing smaller and medium-sized businesses to consider."
Posted by: HSBC Bank plc, Northamptonshire Commercial Centre
