Discusión de resultados

Objectives of scheme

The South of Scotland Business Loans Scheme is targeted at SMEs in need of funding to maintain and increase their competitiveness. The scheme seeks to provide gap funding thereby encouraging businesses and banks to invest and enabling projects to proceed at a more appropriate scale.

The scheme was designed to integrate two existing loan schemes and 2 previous loan schemes in the South of Scotland, the “New Ways Loan Scheme” in the Borders area and the Dumfries & Galloway Business Loan Scheme and the legacy payments from the 2 Foot & Mouth Loans schemes operated in the area.

Loans are for capital and revenue expenditure of £5,000 to £50,000, representing up to a maximum of 50% of project costs, and are available to new and existing eligible SMEs. The scheme does not cover the primary agriculture, the retail sector or financial and professional service businesses. The repayment period is up to 5 years. For loans above £30,000, security is usually taken. Interest is charged at 1% above the Bank of England base rate as at the 1 April and 1 October each year for all loans. As such, the terms of the scheme are comparable to private sector loans, with the exception that the interest rate is lower.

Applicants need to demonstrate that there is a gap in funding because other sources of funding are unavailable. They also a need to demonstrate the viability of the business in the short and longer term and in particular the potential of growth in terms of employee numbers, turnover and other factors. There are other requirements in respect of the equal opportunities and environmental issues.

The application for the scheme suggests that it fits well with “Smart Successful Scotland” under the growing business priority. It is particularly aimed at encouraging micro businesses based in rural communities to develop further and increase employment. To the extent that it is aimed at growing SMEs, it concentrates on an important sector.

The scheme is operated by SEBSED limited, a company limited by guarantee whose members are SE Dumfries & Galloway and SE Borders.

Geographical coverage

The Scheme covers the whole of the Dumfries & Galloway and Borders regions, i.e. all wards in the South of Scotland.

Financial resources

An analysis of SEBSED’s balance sheet at 31st March 2006 shows the following position: Table G.1: SEBSED Limited - analysis of balance sheet (£’000)

Mar-06 Mar-05

Valuation of loans to companies 921 734

Cash 2561 2445

Bank loans 0 0

Cash less bank loans 2561 2445

Amounts owing to SE, paid in from previous loan schemes

3147 2995

Other net creditors -13 141

Shareholders funds £348 £43

Source: CSES analysis of SEBSED accounts

SEBSED has substantial cash resources, of £2.56 million, mainly arising from the repayment of loans made by previous loan funds including the FMD schemes, Dumfries & Galloway Business Loan Scheme and the New Ways Loan Scheme. At 31st March 2006, £2.175 million had been paid in by SE Dumfries & Galloway and £972,000 by SE Borders.

In the accounts the directors explain that “cash in hand consists of income from past loan

schemes. The repayment rate has been higher than anticipated for some of those schemes. This, combined with a lower than projected initial outflow of new applications, has resulted in this level of cash”.

The accounts show that during the year ended 31st March 2006, loans of £454,000 were made and £238,000 was repaid from the current and legacy schemes (£152,000 from legacy schemes was paid in to SEBSED in 2005/06). A net additional £28,000 bad debt provision was made.

Overall, SEBSED would appear to have sufficient cash resources to continue at its current level of operation for some considerable time without further ERDF funding.

An application was made for ERDF funding in June 2003 by SEBSED22. The application was for £1.127 million towards an eligible loan fund of £2.285 million. The total expenditure foreseen, including non eligible expenditure, totalled £3.09 million.

The application was for a loan scheme, not a loan fund. As such, SEBSED and the South of Scotland European Partnership considered that it was eligible for a 50% intervention rate. The scheme utilised the monies repaid from earlier loan schemes in the South of Scotland. These repayments were its only other source of funding and no other new money was given to the loan scheme, thus reflecting the objective of recycling expenditure

In April 2005, a revised application for ERDF funding was submitted. This reduced the size of the scheme as follows.

Table G.2: SEBSED - ERDF application (£m)

Original application Revised application

Total cost of scheme 3.09 2.95

Eligible for ERDF funding 2.285 1.59

ERDF grant 1.127 0.796

The revised application extended the life of the scheme until the end of 2007 and was needed because the rate of expenditure of ERDF funding was below the level originally envisaged. A comparison of grant expenditure (£’000) for the original and revised applications is as follows:

2003 2004 2005 2006 2007

Original 70 445 445 167 0

Revised 0 24 257 303 212

As at March 2006, according to SOSEP, total ERDF expenditure amounted to £257,000. Expenditure continues to be below the levels foreseen in the later application and it is understood that it is planned to de-commit further ERDF grant and use it for other projects. Further funding was de-committed in February 2007. The scheme now has total potential ERDF income of £646,250. The proposed end date for the project is now June 2008 for final ERDF spend with a final claim due by August 2008.

Investments

As at 31 May 2006, management information showed a list of investments had been made in 24 companies from the current scheme amounting to £576,000. The average loan size is £24,000.

As noted above, the balance sheet of SEBSED Limited shows total gross outstanding loans of £1.01 million (£921,000 net of provisions), of which £454,000 were made in the year ended 31 March 2006. The differences between these sets of information no doubt reflect different schemes and time periods. At this stage of our work, we have not had time to reconcile the 2 sets of information.

Financial results

As at 31 May 2006, management information shows that there were no bad debt provisions or amounts written off from the current scheme, reflecting the relatively early stage of the scheme overall. The accounts for the year to 31 March 2006 (which include some older loans) show a provision for diminution in the value of loans of £99,000, or about 10% of the gross value of loans.

Economic targets and outcomes

A SOSEP monitoring visit in November 2005 obtained information on targets and outcomes. The table also shows information at 31 December 2006 supplied by SE Borders.

Table G.3: Results to 31st December

Target total for life of scheme

Profile to end 2005

2005 2006

Financial assistance to existing businesses 86 33 8 14

Financial assistance to new businesses 20 6 7 8

Total new jobs created 347 107 30.5 73.5

Total jobs safeguarded 207 75 50 106

Public sector leverage £m £9m £3.25m £0.6m £12.52m

Increase in sales in existing businesses (£million) £12.52m £0.59m

It is clear that the rate of use of the scheme is below that originally envisaged and the reasons for this appear to include: 1) fewer but bigger loans than expected, and 2) a slow start up to the scheme.

Additionality and displacement

At the enterprise level, there is a test for additionality in the application procedures. The application form requires enterprises to demonstrate that “There must be a clear gap in the

funding package. The applicant must clearly demonstrate that other sources of funding have been sought or are being utilised or are unavailable as they will be expended on other requirements”.

We were told that most applicants are required to provide a letter from their bank saying that further funding on a commercial basis is not available.

Advertising and application procedures

Applications are made through SE business advisers who confirm the eligibility of the project. The SE business adviser also carries out a preliminary appraisal of the project. A financial diligence check is made on the application by a Chartered Accountant employed by SEBSED Ltd. There is a decision panel operated by SEBSED which meets fortnightly, and the decision on whether to invest, and on what conditions, is made at the panel.

We understand that the scheme is mainly advertised through SE and that it is brought to the notice of businesses by SE business advisers.

Management and governance

As indicated above, the scheme is run by SEBSED Limited, a company limited by guarantee. It has 2 members, SE Dumfries & Galloway and SE Borders. We understand from SOSEP that the reason that a separate company was set up is that ERDF funding allocated to the South of Scotland is “ring fenced” for use in the South of Scotland.

The scheme is managed on behalf of SEBSED by WRDC (Enterprise Trust) Ltd. WRDC was set up in 1983 as a local provider of business advice and funding to businesses in Wigtown. It was originally set up by Dumfries & Galloway Regional Council, Wigtown District Council, the then Scottish Development Agency and others. It is based in Newton Stewart.

The management of the scheme was tendered by SEBSED following an OJ advertisement procedure.

Management costs

The monitoring visit estimates that the scheme has received some £45,000 of in kind support. The LECs make a contribution towards the running costs of the scheme, which go towards WRDC fees for the first 3 years. The latest claim form available to us showed a total of £27,000 administrative costs, which we understand relate to marketing and evaluation costs. The total of these 2 costs is £72,000.

The accounts for SEBSED for the year to 31 March 2006 show administrative costs of £98,000. The management fees paid to WRDC amounted to £24,503. The remainder of the charge includes financial diligence checks, marketing Board meeting costs, tax, accountants, auditors and the £28,000 bad debt provision. It should also be noted the management costs also cover the costs of managing two legacy schemes BDLS (45 loans) and NWL (26 loans).