New £200m North East investment fund is needed

The creation of a new publicly backed £200m fund, aimed at North East SMEs seeking finance for growth, is the key recommendation from a new report, published by North East Access to Finance (NEA2F).

The report sets out a strategy for access to finance in the region together with NEA2F’s recommendations to ensure the continued availability of public sector finance for this purpose.

The region has benefited from a succession of publicly backed investment funds; in particular the current, and highly successful, Finance for Business North East (FFBNE) fund. FFBNE will continue to invest in the region’s SMEs until the end of 2014 however there is now a clear need to continue this funding stream so that SMEs can continue to have access to finance to generate economic growth in the region.

NEA2F recently commissioned economic and social research consultancy, EKOS Limited, to carry out a major piece of research into the impact of public sector investment funds in the north east and, as a result, is now able to set out a clear strategic direction for access to finance for SMEs over the coming decade.

NEA2F chairman, Geoff Hodgson said: “Our ‘Strategic Overview and Recommendations’ have been produced from the research and following extensive consultations. This document sets out a clear strategic direction which, we believe, is relevant not only for North East England but at a national level.

“The research has been welcomed by the North East Local Enterprise Partnership and Tees Valley Unlimited and I am very pleased that the LEPs have supported our recommendations.

“The study provides an authoritative and up to date analysis of the role of public investment funds in assisting SMEs to access finance and of appropriate best practice here, nationally and internationally.”

In the event that a full replacement for FFBNE is not available by the start of 2015, the LEPs, NEA2F and other stakeholders recognise the need for transitional arrangements to be put in place and are exploring options with potential funders.

NEA2F have made recommendations for the design of a major replacement fund, with a five year investment period, to succeed FFBNE after the transitional period. Key amongst these is the creation of a £200m regional ‘Fund of Funds’, covering the North East LEP and the Tees Valley LEP areas. This fund will incorporate four or five sub-funds of £25m - £50m each together with a smaller micro-loan fund. The objectives of the fund will be specifically designed to align with the strategic priorities of the two LEPs.

Geoff Hodgson said: “North East England has led the way for many years in the development of investment funds of this kind and continues to be at the forefront of thinking. We see this research and our strategic recommendations as contributing to the continuing evolution of Access to Finance provision for SMEs.”

NEA2F also recognise that many smaller companies do not have the innovative potential, market position and management expertise to be attractive to external investors. They recommend that investor readiness schemes are set up, with the support of the LEPs, to improve the quality of proposals, educate investees and improve awareness of available funding. Such investor readiness support is seen as crucial to delivering economic growth.

The region’s LEPs - the North East Local Enterprise Partnership and Tees Valley Unlimited - will be responsible for setting the future agenda of how public funds are managed in the region. They have backed the report’s findings.

North East LEP director, Edward Twiddy, said: “The new research will play a major part in the way future programmes to inject capital into regional businesses will be structured.

“Now we have an authoritative analysis of what did and did not work, and what SMEs want from investment funds, we have a good road map going forward. We will use these recommendations as part of our strategy for the region’s economic growth.”

Stephen Catchpole, Managing Director of Tees Valley Unlimited, said: “We welcome these findings and the new insight they provide into SME investment in the region and, importantly, what businesses require from investment funding.”