Responsible investors hit the spot new British Business Bank SME fund misses
At the end of April The British Business Bank announced a new £200m funding pot to support high-growth firms across the UK. Yet, by purely focussing on ‘high growth’ SMEs the bank is missing a trick. Fortunately, Foundation East’s socially responsible investment offer on the Ethex platform is helping to hit the sweet spot.
On April 30th, The British Business Bank, announced that it is providing £300 million in additional funding to support high-growth firms across the UK. In the East of England alone, there are 264,000 enterprises, 99.6 percent of which are SMEs (small and medium sized) - including micro businesses (less than 10 employees) and 98.1% of which are micro and small. In fact, 90.6 percent of the businesses in the East of England produce an annual turnover of less than £1m, according to National Office of Statistics (NOS) figures.
Whilst any new finance is welcome this is once again aimed at high-growth SMEs.
Wouldn’t it be great if the British Business Bank put some funds into the small and micro business end of the market too? Especially in the eastern region, which has not benefitted from the large-scale funds currently being enjoyed by SMEs located in the North, Midlands and South West.
In the East of England alone, there are almost 259,000 micro and small businesses who do not tick the lending criteria boxes of this ‘SME high-growth’ funding pot. This is where the sweet spot is. Imagine the social and economic benefits the region would have if the offer was widened to include them!
Here at Foundation East, we have a proven track record of lending to such businesses. Success stories of some were recently shared on the BBC’s Life and Debt series. Those featured, including an award winning Cambridgeshire chocolate factory offering new hope to youngsters with autism, a Lincolnshire well-being centre providing a blueprint for tackling national obesity related issues and a Suffolk carpenter and designer setting up his passion-led business, were lucky. Many micro and small businesses turned away by mainstream finance, turn to alternative sources of finance. Often to high cost credit options with less than transparent terms and conditions. We’re helping where we can and this is possible, increasingly, thanks to people investing on our Community Investment Tax Relief (CITR) shares.
CITR is a little known about tax incentive offered by the government. Those who invest in CITR shares can claim 25% tax relief a year on their investment over a five years period. There are just a handful of Community Development Finance Initiatives (CDFIs) in the country that are accredited by government to sell CITR shares. All are becoming increasingly reliant on this fundraising mechanism to continue to fund SMEs in their region, due to cuts in EU and central government funding.
Mainstream finance, so far, has failed to respond to the funding needs of many micro and small business. With the government and other grant making bodies scaling back support, this is unfortunate. It’s not all bad news though. There is a growing interest in socially responsible investment, and more and more consumers are turning to ethical platforms such as Ethex, to make their money do good.
Encouraged by the success of CDFIs in other regions of the UK, Foundation East launched its CITR ethical investment opportunity on the Ethex platform in March 2019. Its goal is to raise £500,000 during this financial year. So far, Foundation East has raised £130,000 though the sale of its CITR shares.
Thanks to socially responsible investors buying our CITR shares, so many more entrepreneurs in our region will be able to invest in and grow their businesses. This will create and secure jobs in the region. All of the money invested in our CITR shares will be lent to micro businesses, SMEs and social enterprises in the region. These will be businesses with viable business plans that do not tick BBB’s new high growth fund’s boxes. The reason may be a lack of trading history, poor credit history or insufficient assets to guarantee the debt. As a responsible finance company, we look past the barriers and boxes and examine the facts and the people involved to provide finance and support where other funders can’t. We’re hitting the sweet spot. We’re getting money to those businesses that are just as worthy as the bigger businesses. We’re grateful to the region’s growing army of ethical investors for helping us.
You can help us to help even more micro and small businesses, social enterprises and SMEs in the East of England, whilst enjoying 25 percent tax relief on your investment. To find out more, download an investment prospectus. To invest, visit www.foundationeast.org/invest.