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Changes in the local funding environment

Charlie Kerlin Charlie Kerlin

Small and medium sized enterprises (SMEs) in Northern Ireland have traditionally depended upon bank funding, through overdraft and loans, to finance their business. 

In Northern Ireland bank funding represents a significantly higher proportion of overall funding than other European countries and particularly the US, where it accounts for less than 30% of funding.

Trends

One emerging trend arising from the fall out of the credit crunch is that there has been a significant rise in the number of alternate funding providers in the UK and Ireland market. The alternative funders include Asset Based Lenders (ABL), Peer to Peer lenders, Private Equity and Venture Capital Funding. Thus far the uptake of alternate providers has been relatively modest however, particularly amongst Northern Ireland’s SMEs.

There is arguably still a lack of awareness, with many Northern Irish businesses unfamiliar with alternate sources of finance. However, there are also indications that the demand for and supply of finance is slowly improving. Business advisors have an important part to play, working with all key stakeholders, to ensure that knowledge of alternative finance sources is provided to SMEs.

As the local economy continues to improve and business confidence is restored, we will see increases in the demand and supply of funding. The onus is now on the companies to show the ambition to drive their business forward to take advantage of market opportunities.

Our local market continues to see enhanced levels of private equity funding including Broadlake Capital’s investments in Vita Liberata and Conveyortek, Foresight Group’s investment in Hospital Services Limited and MML Capital’s investment in Lowe Refrigeration. There remain significant funds available from private equity to support the potential scaling of our local businesses, facilitating those companies who have the appetite for an aggressive growth strategy.

Family businesses in NI

In Northern Ireland it is widely accepted that family businesses remain the engine of the economy. Historically however, those family businesses have been reluctant to relinquish control which in some cases can prove to be a barrier to success. Family businesses, and indeed all SMEs, must weigh up the benefits which can be gained from accessing finance from alternate providers against the cost of finance. It may well be that the opportunity to own a smaller share of a larger business will make commercial sense.

It is a good time for quality businesses and projects to source finance. There is an appetite to lend, however businesses may need to accept that a cocktail of funding from various sources may be required rather than funding from a single source.

In the last 12 months Grant Thornton has undertaken over 100 meetings with different SMEs who have been discussing their growth plans with us, and seeking advice on securing the right type of funding. The meetings show the ambition of Northern Ireland businesses for growth but highlights that there is a need to secure appropriate advice to ensure that the business is investment ready and seeking funding from the most appropriate sources.