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Access to funding is critical hurdle for SMEs

Yorkshire SMEs are defying Brexit uncertainty with an optimistic outlook, but the issue of access to funding has become a critical hurdle for many, according to a leading law firm.

Gavin Maddison, Corporate Partner at Ward Hadaway

Gavin Maddison, Corporate Partner at Ward Hadaway in Leeds said that access to funding to help small and medium-sized enterprises (SMEs) grow is more important than ever – nearly a year after Article 50 was triggered.

His comments come as the build-up continues to the Yorkshire Fastest 50, the annual run-down of the fastest-growing privately owned companies in Yorkshire which Ward Hadaway sponsors and organises in association with The Yorkshire Post.

According to the Federation of Small Businesses, the European Investment Fund has provided almost £500 million per year to support British SMEs.

As many Yorkshire businesses could lose access to this funding, Mr Maddison says they need to act now to look at alternative sources to sustain further growth.

He said: “Optimism and entrepreneurial spirit go a long way for SMEs, but access to investment and funding will be a critical hurdle for many in 2018. Business owners need to assess how dependent they are on EU Funds or loans and gauge the impact on their business.

“Having spoken to business leaders across Yorkshire, there is a general sense of acceptance that Brexit is happening, but the focus now is on building their businesses and dealing with the consequences of it as they arise.”

Mr Maddison added that anticipating the potential impact of Brexit would give small businesses the opportunity to manage any vulnerability and time to consider additional funding sources. It would also give them a clearer picture of what Brexit will mean for future financing.

“Companies looking to expand, whether they want to access new markets, increase production capacity or acquire competitors, invariably need to look for external finance to help them realise their ambitions.

“While mainstream banks continue to be the key players in terms of the overall volume of small business lending, there are a range of different routes to secure additional capital, and the amount of finance sourced by SMEs from the alternative finance market has increased in recent years.

“City councils and organisations offer loans and grants to support businesses through schemes such as the Regional Growth Fund. There are also other funding options available to help accelerate growth for the region’s smaller businesses.

“For example, at Ward Hadaway, we have been involved in advising companies on investments involving the Northern Powerhouse Investment Fund and Business Growth Fund in the SME sector.

“Private equity is also a realistic more option for companies such as those found in the Yorkshire Fastest 50, as are stock market flotations.

“Business angels and private investors are now more prominent in the market than ever and have taken advantage of what has been a fairly limited funding environment for smaller companies over the last few years, although, like private equity companies, and indeed any funder, they need to see certain criteria met before they will invest or lend.”

Mark Smith, Banking and Finance Partner at Ward Hadaway in Leeds, says that the banks will continue to play a key role as the UK looks to redefine how small businesses are provided with the resources they need to invest, expand and scale-up.

Mark said: “Business data is driving the decision-making process and information from Companies House and business credit rating agencies such as Experian is being used to set loan terms, so it’s worth remembering that poor scores can affect funding applications and limit entrepreneurial growth.

“Banks do now have to refer any SMEs they reject for finance to an online provider that can help them match businesses with alternative sources of finance to help them grow.

“There has been a big increase in peer-to-peer funding, invoice financing and angel funding over recent years with most of the expansion in this sector coming into the SME market.”

He added: “If you have got a growing business, then it makes you attractive to funders of all kinds, from banks, invoice financiers and peer-to-peer lending platforms.”

Mr Maddison agrees. He said: “No one is certain how businesses will fare as the UK negotiates agreements with the EU, but what is clear is that there are opportunities to access many different sources of capital.

“The main thing is for your management team to have a really good grasp on the current finances of the business and its financial future.

“The key is to get ahead of the game. Act now to ensure your SME drives business forward regardless of the uncertainty that Brexit presents us with. If you do this, then you will be a good way along the road of securing finance for your business.”

The Yorkshire Fastest 50 2018 takes place at Aspire in Leeds on Friday, 16th March with guest speaker Keir Starmer, the Shadow Secretary of State for Exiting the European Union.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

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