The Government's latest action plan for jobs has called for a new focus on how best to maximise the benefits to SMEs of the evolving financial landscape in Ireland, as well as the adoption of actions that can create a more diversified and competitive financial system capable of financing the growth potential of Irish SMEs.
InterTradeIreland’s latest “Funding for Growth” initiative is particularly timely in this context. The programme is aimed at assisting established indigenous companies to grow and prosper by educating and informing them on new and alternative sources of finance.
"Ensuring that firms have access to the financing options appropriate to them and that they are not constrained by funding limitations from undertaking investment projects is an important ingredient in supporting economic recovery and growth", says InterTradeIreland strategy director Aidan Gough.
“This is particularly important for SMEs, given that they have generally been shown to have less diversified financial structures and tend to be more exposed to negative economic and financial shocks than are larger firms.”
The new advisory service has been designed on the basis of research carried out over the past few years.
“We did a piece of research back in 2012 which showed that the funding market at that point was distressed, to put it mildly,” says Gough. “We noticed some improvements after that so we decided to look again. We used that data gathered through our business monitor and this covered 2,500 SMEs across the island of Ireland and their experience with funding.”
Among the key findings of the latest research was that most firms use short-term sources of finance, with the most common product being an overdraft facility, which is used by about 40 per cent of firms.
The percentage of firms using commercial loans was 22 per cent in 2012 but fell to 17 per cent in 2014. The percentage of firms reporting no experience of financial distress increased from 40 per cent in 2012 to 63 per cent in 2014. Importantly, there is no evidence of different behaviour by banks operating cross-Border.
The programme is aimed at encouraging SMEs to explore their options, according to InterTradeIreland funding advisory services manager Gráinne Lennon. “A lot of SMEs just didn’t look for finance during the downturn or they stuck with the same provider. We want to educate them to shop around. There has never been as much finance around as there is now. Trade finance like credit factoring used to be frowned upon but it is a very useful source of working capital finance.
“There is a lot of private equity in the market as well and this offers companies the opportunity to work with a partner with the same aims as they have – private equity investors tend to be in it for the long haul. Peer-to-peer lending is also worth exploring.”
The new service, which is primarily aimed at established companies, was launched earlier this month at a major event in Croke Park attended by more than 400 delegates. The delegates heard from Gerard Keenan, executive chairman Keenan Group, and Donal Garrihy, managing director of 2468 Group, about their funding journey. They also directly from their funding providers. In addition, more than 50 funders, including local economic development agencies, exhibited at the event.
Keenan explains his company’s own funding journey. “We had been with a bank for more than 20 years and they had been very good,” he says. “They were very advanced in terms of business but they were an overseas bank and were no longer that interested in Ireland. We required a bank that believed in us and what we were trying to do as a business.
“We started talking to Bank of Ireland in 2012 and moved to them because they had a genuine interest in what we were doing and understood our business and the sector we operate in. They also have a genuine interest in supporting Ireland and Irish business.”
However the company is looking beyond bank funding for future sources of finance. “We were approached by the Alternative Investment Market of the London Stock Exchange with a view to floating the company a few years ago,” Keenan says.
“That planted a seed on our minds. They told us that private companies were going to have to look beyond banks as a source of funding. That got us thinking. We had great growth potential but couldn’t rely on sales and profits to fund it. We would need an investment and that would mean bringing a partner into the business. That required a change of mindset for us.”
While the Keenan Group has not yet brought in an external equity investor, it is certainly open to the idea and Keenan believes that other companies are going to have to go on the same journey.
“Companies are going to have to change their thinking and their attitude in relation to funding. There is something new emerging that didn’t exist in the past. A lot of SME owners in Ireland sold their businesses quite early because of a lack of finance for growth, but there is a lot of funding out there now which they can access.”
Companies signing up for the new Funding for Growth service will have the opportunity to attend one of 12 free workshops and 20 free advisory clinics at locations across the island where they can learn about funding options and network with funding providers.
They can also register for a free advisory meeting with a corporate finance expert who can assess their ability and to raise funding for growth, advise on funding options, and point them towards potential funders.
Early stage and start-up companies continue to be serviced by InterTradeIreland’s equity supports, including regional equity clinics and the annual Venture Capital Conference which will be held in Dublin this year on March 11th.
That conference offers the best opportunity for companies to meet active venture capitalists and business angels on the island and to learn from the experiences of companies who have successfully fund raised and exited. It proves to be a unique and valuable networking opportunity for companies and investors alike each year.
To learn more about the Funding for Growth advisory service go to intertradeireland.com/funding-for-growth.
