Local Enterprise Agency loan funds and investment readiness in UK small firms

Abstract

We considered (i) whether loan funds managed by Local Enterprise Agencies (LEAs) in England addressed the finance gap faced by new and small firms that are unable to raise investment capital from other sources, and (ii) whether LEA loan funds offered value-for-money and sustainability. Utilising realistic evaluation and data provided by LEAs, we found that funds had a high conversion rate of applications to loans, presumably because most referrals came from advisers and so propositions unlikely to be supported had already been weeded out, and due to high repayment rates. The level of demand suggested that knowledge of the availability of loans from these sources was still low, but that loans from LEAs were genuinely additional for small firms that would not otherwise have been able to raise the required finance from other sources, indeed in many cases leveraging commercially sourced funds. While LEA loan funds were becoming more efficient, they were not – and were unlikely to become – wholly sustainable. The high conversion rate (and low default rate) suggested that the real need for prospective entrepreneurs is effective advice and support to improve their ‘investment readiness’ and thus assist in unlocking the necessary financial support.