By Alistair Brew
The Business Growth Fund (BGF) has been created to help bridge the equity gap in the provision of £2m-£10m of growth capital identified back in 2009 by the 'Rowlands Review'. As part of the more recent 'Project Merlin' discussions, five of the largest UK banks – Barclays, HSBC, LloydsTSB, RBS and Standard Chartered – set up the BGF in April 2011. Together, they have committed £2.5bn of capital, which is expected to take 10-15 years to invest.
So, is the BGF really the BFG (big, friendly giant) SMEs are looking for?
How it works
In return for £2m-£10m of equity, the BGF will expect a minority stake of around 20%-40% of qualifying businesses and a board seat – although it will not be involved in the business on a day-to-day operational basis. Instead, the BGF will work in partnership with business owners, supporting them with funding, expertise and through its business networks.
Having already met the BGF's investment criteria and due diligence, it is hoped that businesses will be able to secure additional financial backing from other sources – as well as look more attractive to customers, suppliers, employees and other stakeholders.
Qualifying criteria
The fund is open to established, profitable, UK businesses with a turnover ranging from £5m to £50m and demonstrable growth potential. Start-ups, early stage businesses and turnarounds are not eligible and the fund focuses on providing growth, as opposed to replacement capital.
Businesses from all sectors, excluding financial services and property, are invited to apply. Areas of particular focus include high-tech manufacturing, software and electronics, leisure and tourism, retail, renewable energy and cleantech, healthcare and life sciences, industrial and business services, outsourcing and digital businesses.
Investment process
The BGF will source funding opportunities directly and through intermediaries. An internal investment committee will be involved in each deal from the outset, with due diligence carried out by professional services firms, BGF's in-house team and its network of business partners. The entire process is anticipated to take around three to four months. Where a business is refused funding, early feedback and alternative options will be given.
Autonomous decision-making
The BGF has been set up as an independent, commercial business so Government and banks do not influence investment decisions. Some critics say the BGF should be targeted at smaller firms, where the equity gap is even more evident.
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