The British Business Bank has announced the first wave of its £250million Midlands Engine Investment Fund (MEIF), with the launch of £120million of SME debt finance, which is now available to businesses across the 10 Local Enterprise Partnership areas in the Midlands.
Aimed at eliminating regional imbalances in funding, the British Business Bank is keen to support fast-growth organisations and businesses looking to expand into new markets and boost productivity, supporting job creation.
Programme: British Business Bank
Award: Up to £2m in lending and investment
Opens: 29th Aug 2017
Closes: 31st Dec 2023
The MEIF is the result of close collaboration between the British Business Bank, the Department for Business, Energy and Industrial Strategy, the Department for Communities and Local Government and 10 Local Enterprise Partnerships (LEPs) in the East & South East and West Midlands. It brings together new and existing funding from Central Government, the European Regional Development Fund (ERDF), British Business Bank and European Investment Bank (EIB).
The £120million fund is composed of two separate lots – £30million of small business loans valued between £25,000 and £150,000, as well as £90million of debt finance worth between £100,000 and £1.5million. The £120million fund is part of a wider £250million commitment, with further funding due to be made available later this Autumn.
The Midlands Engine Investment Fund (MEIF) is a key part of the Midlands Engine Strategy. It aims to transform the finance landscape for smaller businesses in the Midlands and to realise the region’s potential to achieve economic growth through enterprise. As well as providing £250 million of lending and investment to smaller businesses, it will help to develop the business networks and the wider ecosystem that are crucial to achieving long-term prosperity in the Midlands.
MEIF is available to support a wide range of businesses at different points in their development, from early-stage businesses seeking small business loans through to businesses wanting to take advantage of their growth potential through equity investments. Encouraging businesses with growth potential to scale up is a particularly UK challenge. While the UK performs relatively well internationally in terms of creating new business start-ups, fewer of its scale-up businesses grow, compared to other countries. There are high growth businesses in all the LEPs across the MEIF area. By creating a better environment for businesses to grow and scale up, the number of high growth businesses can be increased, and positive spill over effects on productivity and job creation in the region can be realised.
This is the first time that LEP areas in the Midlands have come together on this scale to pool their resources in a single fund-of-funds to meet the financing needs of smaller businesses. In addition to leveraging additional finance, MEIF allows resources to be targeted at SMEs with growth ambitions across a wider area than was possible for funds delivering previous rounds of ERDF funding. The economies of scale generated by MEIF will enable more money to be invested directly in
smaller businesses across the Midlands. Since MEIF was first announced at Budget 2016, the British Business Bank has worked collaboratively with participating LEPs to combine the LEPs’ intimate knowledge of local businesses and economic conditions with the experience and resources of the British Business Bank as Government’s centre of expertise in
small business finance markets.
MEIF does not invest directly in businesses. Instead, it operates a funds-of-funds model whereby external delivery partners operate debt funds, small business loans, and proof of-concept and equity funds. These funds will be operated throughout all 10 LEP areas
so that every area has at least one of each fund type available.
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MEIF will not invest directly in businesses. It has a fund-of-funds structure and will allocate monies to a number of underlying sub-funds, which will in turn lend to – and invest in – smaller businesses across the MEIF area. The sub-funds will make a wide range of types and amounts of finance available to SMEs. Participating LEPs and the British Business Bank have worked closely together to determine the types of finance that will best meet the needs of businesses across the MEIF area. Analysis undertaken by Regeneris for the EIB and the Department for Communities and Local Government identified the following particular gaps in the provision of finance in the East Midlands and West Midlands regions:
• Small business loans: provision of microfinance
(from £25,000 – £150,000)
• Later-stage debt: provision of business
loans (from £100,000 – £1.5 million)
• Proof-of-concept: provision of early-stage
equity funding (up to £750,000)
• Equity: provision of equity funding
(up to £2 million)
The Regeneris report suggests these issues are exacerbated for small and micro businesses with a limited asset base or track record. The report also suggests there is significant latent demand from businesses that are discouraged from applying for finance. This theme also applies to larger SMEs in the MEIF area that are seeking larger amounts of debt finance, although the share of bank lending going to SMEs in the Midlands is broadly in line with the proportion of businesses located there. Data from the British Bankers Association indicates that 14% of approved bank loans by value – and 14% by number – went to the Midlands in between Q2 2016 and Q1 2017, which is in line with the area’s proportion of the UK business population.
It has therefore been concluded that the £120million fund be composed of two separate lots:
The £120million fund is part of a wider £250million commitment, with further funding due to be made available later this Autumn.
The previous round of European Regional Development Funding (ERDF) was available to be invested between 2007-2015. A number of standalone platforms were developed in the Midlands to deliver ERDF funding to SMEs, through a mixture of debt and equity finance products.
An alternative ‘fund-of-funds’ model to deliver ERDF finance to small businesses was also created for the previous round of ERDF funding, by the European Commission in conjunction with the European Investment Bank (EIB). This model was adopted in the North East, North West, and Yorkshire and Humber regions in England, as well as in Wales. These funds-of-funds were called Joint European Resources for Micro to Medium Enterprises.
MEIF will be on a larger scale than previous funds in the Midlands and it will build on best practice from both the platforms developed in the Midlands and from JEREMIEs developed in other regions. Economies of scale and simplified administration will also ensure that more money is available to invest in smaller businesses across the MEIF area.
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