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Three key lessons in regional SME funding

30 January 2020: the success of the SME sector is fundamental to the economy, and ease of access to funding for growth is key to driving that success. Jon Scopes, a strategy consultant in the SME sector and ICAEW member, lists the three key lessons SMEs should learn to gain access to finance.

The introduction of regional programmes from the British Business Bank, such as the Northern Powerhouse Investment Fund (NPIF), has been important in driving regional growth. NPIF has already helped 440 SMEs develop their businesses since its inception. How to apply to these funds successfully, and then maintain the relationship with funders post investment, are at the heart of successful fundraising. Here are three lessons that may help you with an application.

Lesson 1 – be a partner in the funding

While regional programmes provide funding to companies who have been unsuccessful in obtaining finance through “traditional” routes, this does not mean that these businesses are inherently problematic. Sometimes it’s simply the case that their sector is not attractive to lenders. But more often than not it is the lack of tangible security that is the issue. This is where partnership comes in. Specialist regional SME funders have vast experience working with SMEs, getting to know the business and really understanding the proposition before them.

This is clearly the case when equity investment is required. These funds are sensitive to owners’ reluctance to part with some of their stake in “their baby”. In fact, if investment is successful, the fund may channel some of the gains back to the owners.

Lesson 2 – the business’s story matters to investors

Business plans must set out compelling (but realistic) arguments why the company will succeed. Sure, financial projections matter, but businesses applying for funding should also understand that the business’s “story” is important to funders.

Lesson 3 – great stories need convincing storytellers

Funders invest in the people, not just the attractiveness of a business. The track record of the management team, and their plans to fill any gaps, are a key part of the assessment.

After investment it is important for the investee company to provide regular management information on not just the numbers, but also on why the numbers are what they are. More than that, it’s about keeping in touch and being open and honest, even when the news is bad – partnership again.