£50m loans package to support jobs and investment
First Minister announces new funds for Scottish Investment Bank at STUC Congress
Plans for a new £50m loan facility to be delivered by the new Scottish Investment Bank (SIB) to help growth and exporting firms expand and so boost the economic recovery, were unveiled by First Minister Alex Salmond today.
Addressing the STUC Congress in Dundee, Mr Salmond said the Scottish Government was acting decisively to safeguard and create jobs such as prioritising skills and training through ScotAction, funding over 20,000 Modern Apprenticeships and supporting more low carbon jobs.
The First Minister said: “This additional £50m funding will enable the new Scottish Investment Bank to develop a loan facility for Scotland’s growth and exporting businesses.
“These are just the type of companies which have been putting their business development plans on hold while struggling to secure the necessary finance. Yet they are the companies that will offer the greatest contribution to Scotland’s economic recovery and growth.
“This £50m sends another clear message that we are prepared to put our money where our mouth is to support the Scottish economy. And we are also sending a clear message that we want Scotland’s banks and financial institutions to do the same.”
Mr Salmond also reiterated his call for a renewed fiscal stimulus, adding: “There is no substitute for the full macro-economic powers that independence would bring but we are making maximum use of the powers that we do have to maintain and accelerate the pace of recovery.”
The £50m – £20m of European Regional Development Fund resources and £30m from the Scottish Government and Scottish Enterprise – adds to the existing £150m of mainly equity support previously earmarked to be brought within the Scottish Investment Bank.
STUC General Secretary Grahame Smith commented: “The STUC enthusiastically welcomes the First Minister's announcement on funding arrangements for the Scottish Investment Bank. We have consistently highlighted the apparent inability of the financial sector to support growing Scottish companies by providing patient, committed capital. By helping to overcome this key structural failure the Scottish Investment Bank can play a pivotal role in helping to return the Scottish economy to sustainable growth.”
CBI Scotland Director Iain McMillan said: “This is a welcome announcement. The Scottish Investment Bank loan fund will play a valuable role in filling a gap in the supply of finance that has been holding businesses back. In particular, we support the focus on exporters since it is these companies who will offer us the best chance of a return to sustainable growth.”
David Watt, Executive Director of the Institute of Directors Scotland, added: “The Institute of Directors welcomes the Scottish Investment Bank loan fund as another source of finance for the hard-pressed SME sector and sees the development as an invaluable partnership with the private sector to help ease some more support into the marketplace. The availability of such finance is vital for businesses to keep growing, developing and investing in the future and therefore is crucial to the Scottish economy.”
Scottish Enterprise Chief Executive Lena Wilson said: “The new loan fund will help to increase the availability of finance for those growth and exporting companies which can have the biggest impact in helping Scotland's economic recovery. We're committed to getting the Scottish Investment Bank loan fund open for business as quickly as possible and confident it will have a significant, positive impact on Scotland's businesses and the wider economy.”
Background
1. The Scottish Investment Bank Limited has been established by Scottish Enterprise as a subsidiary company. The SIB will be responsible for the new Loan Fund and the agency’s existing 3 mainly equity-based funds: Scottish Seed Fund, Scottish Venture Fund and Scottish Co-investment Fund.
2. The Scottish Investment Bank loan fund comprises £20m in ERDF resources matched with £20m from Scottish Enterprise and a £10m allocation from Scottish Government spring budget revisions that was announced in February.
3. The loan funding aims to provide, by the end of the year, mezzanine-type loan products, targeted mainly at the needs of growth and exporting businesses that are not being met by banks or other private sector sources. It will complement existing public sector finance sources such as the long-established West of Scotland Loan Fund and £5m East of Scotland Investment Fund, announced last month, to support local business growth and job creation.
4. Mezzanine-type finance products lie between relatively safe, secured senior bank debt and relatively riskier external equity and are aimed at viable firms with strong business plans. Many banks offered this type of product until recently, but have now withdrawn them as they seek to reduce their risk exposure. Mezzanine finance generally involves a higher borrowing cost than bank loans, comprising regular interest payments together with an additional lump sum payment (cash or equity) at the end of the loan term.
5. Ensuring improved access to finance to support investment for growth is a crucial element of the Scottish Government’s Economic Recovery Plan. Work is underway across the public sector to deliver that plan, accelerate recovery and improve the long term performance of Scotland's economy (http://www.scotland.gov.uk/Publications/2010/03/03084300/0).