bankling update 39
Growth fund puts businesses in control
Santander Corporate Banking’s Breakthrough Growth Capital initiative addresses demand for investment finance from smaller companies that want to expand without losing control of their business
The Breakthrough programme identifies Britain’s most entrepreneurial small and medium-sized businesses (SMEs) and targets them with dedicated support, preferential finance and opportunities to open new sales channels.
... the Breakthrough Growth Capital initiative will provide up to £200 million in growth capital to around 40 companies per year over the next five years
... there has for too long been a gap in the funding market for smaller companies looking for investment finance that is both affordable and enables them to keep hold of their company in its entirety
... the fund differs from conventional mezzanine finance in that there is no equity component and thus no dilution of ownership
Aimed at established, profitable and rapidly-growing SMEs, the Breakthrough Growth Capital initiative will provide up to £200 million in growth capital to around 40 companies per year over the next five years.
“Limited availability of growth capital to SMEs with turnover of £500,000 to £10m poses problems not just for individual businesses, but for the economy as a whole,” explains Darren Hart, head of Santander’s Growth Capital team. “Access to finance is crucial for businesses looking to invest and grow, and there has for too long been a gap in the funding market for smaller companies looking for investment finance that is both affordable and enables them to keep hold of their company in its entirety.”
Alongside programmes such as the Regional Growth Fund – a government scheme aimed at funnelling cash to SMEs that would not otherwise be able to secure commercial finance – the Breakthrough Growth Capital initiative makes money available through a bespoke variation on the mezzanine finance theme.
In common with conventional mezzanine finance, the Breakthrough Growth Capital investment’s repayment structure minimises the drain on cashflow during the crucial period when the business is putting its growth strategy into operation. Half of the 10% interest margin plus LIBOR is paid quarterly throughout the term of the loan, with the remainder accruing up to the point at which the debt matures, when it is paid with the original capital.
Crucially though, the fund differs from conventional mezzanine finance in that there is no equity component and thus no dilution of ownership. In other words, Santander receives its return solely through an interest charge.
An ambitious veterinary group based in the Midlands and South East is one of the first SMEs to benefit from Growth Capital investment. YourVets was established in 1997 to provide affordable veterinary care and has grown rapidly since the current management took over in 2005 with the opening of four new practices in Rayleigh, Coventry, Dagenham and Solihull.
YourVets has received £1.25m from the Breakthrough Growth Capital initiative and the Regional Growth Fund, which will be used to double the size of the business over the next three years, explains director Michael Bishop.
“Our investment in these new branches is considerable, which when coupled with initial start-up losses means they require substantial capital before they begin to contribute funds to ongoing group expansion.
THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2012
www.businessmag.co.uk Jo Norton, relationship director
“Having banked with Santander for just over two years, our relationship director, Jo Norton, recognised that despite strong and profitable growth over that period, our greenfield new branch growth strategy, of developing new sites rather than acquiring existing practices, was limiting the rate at which we could finance this expansion through traditional banking facilities; she therefore identified that the Breakthrough Growth Capital initiative might provide additional funding at this critical stage without the need to hand over any equity.”
The new facility will provide funding for the refit and equipping of YourVet’s next five new branches, generating up to 150 new jobs and enabling the group to maintain its current growth to the point at which further expansion can be funded through traditional banking facilities.
“The Growth Capital loan enables us to access funding based not just on the current value of the business, but what we can grow the business into over the period of the loan and comes at a price that is affordable and does not cost us ownership of our business,” concludes Bishop.
The funding is aimed at businesses achieving a turnover of between £500,000 and £10m per year while posting growth of 20% or more in turnover, profit or employment. Companies can also benefit from the other elements of the Breakthrough programme, ranging from overseas trade missions and live networking events, to access to some of the best fast- growth and iconic businesses in the UK to learn from their experiences first-hand.
In November, businesses in this region will have the chance to attend a ‘Breakthrough Live’ event in Oxford. For more information visit:
www.santanderbreakthrough.co.uk
To start working with Santander, contact your local relationship team.
Details: 0118-9211680
www.santandercb.co.uk
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