The Scottish Government

« Previous | Contents | Next »

Listen

ANNEX F FUND PROFILE - WEST OF SCOTLAND REGENERATION FUND

Objectives of fund and geographical coverage

The West of Scotland Regeneration Fund ( WSRF) is part of DSL.

WSRF lends to all sectors (retail is an exception if no wholesale element is included in the application) within West Central Scotland (Ayrshire, Lanarkshire, Dunbartonshire, Renfrewshire, Glasgow). WSRF lends to start-ups (65%) and existing businesses (35%). These range from small one person businesses to larger ones (probably no larger than 50 employees). The majority of DSL's clients are micro-enterprises, with less than 10 employees.

First loans are between £1,000 and £30,000, typically repayable over a period of up to 5 years with an interest rate of approximately 12%. Prior to May 2005, DSL interest rates were set as the Bank of England base rate plus 4%. However, in order to make them more sustainable, DSL decided in May 2005 to raise their interest rates to 12%. This represents a commercial rate.

In 2005 WSRF lent £1.3 million which levered: £1.3 million in private sector support; £0.9 million from the public sector and £1.04 million from the owners of the businesses. In 2005, DSL issued 126 loans to 124 organisations. 2 of these loans were to social enterprises (under SEF), with the remaining 124 to businesses (under WSRF).

Financial resources

DSL has about £1.8 million to lend on an annual basis. DSL has an existing loan of £1.4 million from Unity Trust Bank and have negotiated another £2 million. DSL has about £1 million in capital from ERDF to lend (additional ERDF for staff costs and bad debt guarantee).

ERDF gave DSL an additional £1 million in capital plus it provided another £442,000 in guarantee. The guarantee was added to £614,000 of money from the Phoenix fund ( DTI) which enabled DSL in turn to get a £1.8 million loan from UTB ( DSL has now repaid about £400,000). Without the ERDFDSL say that it is most likely that they would not have got the loan from UTB and would therefore not be able to lend. DSL consider that more than likely this would have meant they would have stopped trading.

A summary profit and loss account and balance sheet of DSL is shown below for the years ended 31 ^st December 2004 and 2005

Table F.1: DSL - Summary profit and loss account and balance sheet (£)

Source: published accounts of DSL

DSL has a target of 12% losses prior to recoveries. At present this fluctuates but is about 13-14%. The net loss after recoveries is about 7%.

Investments

An analysis of the main sectors in which DSL invests is as follows:

Table F.2: DSL investments by sector

Economic targets and outcomes

In analysing numbers and outcomes it must be recognised that the principal markets are smaller businesses and self-employed persons. Job numbers were higher in 2005 so perhaps this is increasing. Jobs sustained are high due to the number of businesses with problems that DSL lend to. DSL is targeting the small end of the market, so job numbers will be lower but on the other hand jobs sustained and companies helped to survive will be higher.

An analysis of turnover by company size is shown below:

Table F.3: Turnover in Previous Calendar Year

Source DSL, based on evaluations of DSL carried out by Glasgow University

Table F.4: Number of Businesses Receiving Financial Assistance

Source: DSL Evaluations 2004 and 2005 by University of Glasgow

Jobs Created and Safeguarded

As per the evaluations of DSL carried out by University of Glasgow, estimates of number of jobs created and safeguarded during 2004 and 2005 are shown below:

Table F.5: Number of jobs created and safeguarded

Source: DSL's Evaluations 2004 and 2005 by University of Glasgow

Accordingly to the DSL evaluations carried out by University of Glasgow, cost per job created and safeguarded was estimated at £3,224 during 2004 and £5,443 during 2005. The increase in cost of jobs created and safeguarded is due to larger loans to more sole traders in 2005 than in 2004.

Additionality and displacement

DSL only lends when the bank has refused finance. Their application procedures require a letter from the bank stating this. As DSL's interest rates are higher than any public sector lender they tend to gap finance after the public sector has put in finance and after the banks. Otherwise everyone else has refused and DSL are the sole lender (60% of cases). 70% of DSL clients are in ERDF objective 2 areas; 30% in transitional.

As DSL has high interest rate (now about 12%) it would be difficult to displace other business lenders. In the case of lending to clients who displace others DSL say they endeavour not to lend to retail where there is obvious displacement or where they feel the market is saturated.

DSL offers support to organisations that other loan funds (including WSLF) cannot provide (for example, offering smaller loans, supporting certain sectors, supporting sole traders, support to buy/convert premises, etc). There is therefore an ongoing 'gap in the market'. According to the 2005 evaluation of DSL by the University of Glasgow, 69% of the clients perceived DSL to be the only source of fund available to them. To a certain extent this reflects the fact that DSL is a 'lender of last resort'

Advertising and application procedures

DSL gets about 65-70% of clients via the Business Gateways. Other clients come from the local councils and partners. With the issues surrounding Business gateways in 2006, there has been a slow down in references from this source.

Management and governance

DSL are a company limited by guarantee and not having share capital. DLS has one shareholder, CEIS. The board of directors is drawn from the public and private sector e.g. Business gateway, RBS, GCC, LEDC etc.

Management costs

DSL take a management charge of 1% per loan (loans of £1.3 million in 2006 = £13,000). DSL's administrative costs are £178,000 for 2005 and include all 4 staff plus consultancy costs. This does not include direct costs (bad debt etc) or overheads, shown in the accounts above.

Given annual lending of about £1.3 million, these costs represent about 14% of gross loans.

« Previous | Contents | Next »