Yesterday, the government embraced the report findings that called for an additional fund to help fill the gap left in funding for SMEs that are growth-focused.
The report which is referred to as the Rowlands Review and was headed by Chris Rowlands, a member of the Principality Building Society; shows that market failure is common for SME’s who need financing for growth in the up to £10m range.
Officially the report is titled the Provision of Growth Capital to UK SME’s and shows that the gap in funding is not because of the recession, but because funding due to structural lending is usually much easier to get in the bracket below £2m and in the bracket above £10m because of higher venture capital activity.
The report also states that SMEs would have better chances of finding funding in a solution where the finance can be turned into equity later instead of through straight equity or debt finance conventional solutions.
Additionally, the report adds that SME growth works best with mezzanine finance due to the fact that it is middle ground financing that is not high risk and holds the possibility for a high return.
Currently the research from the report estimates that there are anywhere between 25,000 UK businesses and 32,000 businesses that would benefit from the additional funding options that would allow them to proceed with capital growth.
Rowlands stated that the review shows that the provision of capital to SME’s appears to be permanent which is why the UK needs to act to help these businesses out as they try to come back out near the end of the recession.