Corporate Finance: Mix of Funding Vital to Growth; Ray Smith Looks at How Smaller Firms Can Access Growth Finance

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As financial management counsellors, my colleague Mr Peter French and I spend a good proportion of our time advising and helping firms structure their finances correctly.

Most businesses require a package of finance, often from a variety of providers, and getting the mix right is a critical success factor for many businesses.

We can all recall situations where there has been over reliance on one source of finance and the associated problems this can bring.

Many businesses will source their own finance successfully without our help. However many turn to us when the situation becomes more complicated, quite often when they have some, but not all, of the funding in place.

In these cases we will fully assess the situation and if there is a viable business proposition, we will endeavour to put a finance package together.

This will mean looking at all the possibilities including local grants, local loan funds and, if necessary, venture capital or a private investor to ensure the correct balance between debt and equity.

I would suggest that the perception that an "equity gap" exists for smaller businesses is largely a myth.

Our experience at Business Link Birmingham is that provided we are dealing with a viable business with good growth prospects and a capable and creditworthy management team, finance can be found provided the owners are prepared to be flexible.

This may mean sharing ownership with a Venture Capital Fund or investor, but it does not mean surrendering control of the business.

And yes, small equity funds do exist.

Locally we have the Birmingham Enterprise Fund, which will invest up to pounds 50k by way of equity and/or loans.

The Midland Venture Fund based in Nottingham will look at requests for up to pounds 250k.

Money raised through such funds are often the lever that can provide matching amounts of bank finance and, coupled perhaps with grant aid and internally generated funds, can result in a substantial package of support.

Business Link Birmingham has seen increased activity in the areas of management buy-outs and succession planning over the last two to three years.

While our raison d'etre in Birmingham is to improve local business performance and job prospects, ensuring that businesses and jobs remain in the City is equally important.

In many cases this allows us to provide valuable subsidised business support to management teams with a chance of purchasing their company.

In recent months we have had a number of situations where larger groups have sought to rationalise their activities and this has meant that small local companies which do not fit into their portfolio any longer have been offered for sale. …