Small firms turn to alternative funding

May 13 2008 Evening Gazette

SMALL businesses on Teesside are turning in ever greater numbers to alternative funding agencies as banks tighten the reins on lending.

UK Steel Enterprise (UKSE), the Corus-subsidiary that supports new and growing businesses, said it expected to more than triple its lending this year and, despite bank’s reluctance to lend, there was no dampening on the entrepreneurial spirit on Tees.

UKSE's Northern office, responsible for the steel areas of Tees Valley, Derwentside and West Cumbria, said it had lent £250,000 in April with another £250,000 ready to move off the books. A further £1.5m was under appraisal, making it an “exceptionally busy start to the year”.

“Normally, we have two or three projects on the go - at the moment we have eight and they are all chunky projects,” said regional manager Simon Hamilton. "The projects that are coming to us for investment, direct from the company or through accountants and other business advisers, are right across the range of sizes and types.

"Where banks and other institutions may be tightening their reins at the moment we are able to be more flexible, especially where security may be difficult.

“The market is more difficult for businesses raising funding. The banks are considering their position - although we would always encourage business to try primary lenders first - that’s what they are there for.”

UKSE, which has never disclosed the true size of its multi-million fund, recently upped the lending limit for individual firms from £400,000 to £750,000 and introduced more flexible mezzanine arrangements.

Mr Hamilton said it typically looked for a return on investment over five years.

“We look on it on a semi-commercial basis. We are not looking at the high returns of a true venture capital company but we make a reasonable return to allow us to revolve the funds.

“We are not like a normal venture capital company which puts measures in place to almost force an exit or make it very difficult for companies to go past a particular date. Because we are all about creating jobs in former steel areas we look at it in a different way.

Mr Hamilton said there had been no dampening on the entrepreneurial spirit on Teesside.

“We are seeing no lack of confidence. Every project we have got is an expansion project rather than fire fighting with good job creation and growth prospects for the future.”

UK Steel Enterprise Ltd, a wholly-owned subsidiary of Corus, aims to improve the economies of areas affected by changes in the steel industry. It helps new and growing businesses with tailored finance and by providing managed business premises.

Nationally, more than 4,300 companies have benefited from UKSE support with around £60m of true risk capital being made available and more than 1,400 businesses houses in managed premises.

About 66,000 jobs have been created, including at Innovation Centres at Kirkleatham Business Park near Redcar and on Hartlepool's Queens Meadow Business Park, which houses round 80 Tees Valley firms.