Learn more about Andrew Webster, an investment director at Beringea, and his insights into the growth of SME lending
The ProVen Estate Planning Service is designed to help investors mitigate inheritance tax (IHT) while receiving a return on their investments as a hedge against the impact of rising inflation.
ProVen, which manages more than £300m on behalf of more than 10,000 retail investors, is managed by Beringea - a long-standing international venture capital investment firm with a focus on UK SMEs.
Here Andrew Webster, investment director at Beringea, shares his insights into the growth of SME lending, how the sector is developing, and his focus within the ProVen Estate Planning Service.
I’ve worked in the financial services and lending space for more than 30 years, starting my career as a corporate banker with Kleinwort Benson (now part of Commerzbank) before holding senior positions at ING and Noble Venture Finance. I then co-founded Boost&Co, a private debt lender to UK SMEs.
Having extensive experience in the lending industry, I now look for suitable opportunities to provide debt-based finance to fast-growing companies for Beringea’s ProVen Estate Planning Service.
There are many reasons why businesses raise money. For example, these may include wanting to fund growth opportunities or invest in new equipment.
The main advantage of debt financing is that company shareholders do not have to give up ownership over part of their business. Lenders are creditors to the company. Once the loan is fully repaid, with interest, the relationship ends.
In contrast, the main advantage of equity financing is that the money doesn’t have to be repaid, unlike a loan.
At ProVen, we can provide both equity investment through our VCTs and debt finance to businesses based upon their needs and profile.
Typically, a company that is generating reliable cashflows and is looking to expand could be interested in borrowing to fund its growth. This is where our debt finance provides a suitable option.
At ProVen, we keep things simple by only lending to UK companies that generate regular cashflows and have assets that can be secured.
For example, we have recently provided loan facilities to:
Lending to companies like these mean loan repayments are likely to be reliable, providing the security of regular income for investors.
And because we are focused on the UK, we are not exposed to the volatility of foreign currency that can have a major impact on investor returns.
SMEs are the engine of the UK economy. According to government statistics there are 5.7 million SMEs registered in the UK. These employ 16 million people and generate £1.9 trillion of revenues.
It’s a big market but most of these companies do not meet our lending criteria. We focus on a subset of SMEs that offer growth potential and can demonstrate solid underlying cashflows.
Like any successful relationship, it is important to get to know who you are dealing with – it is vital to meet the management team and understand what makes the business tick.
It is also important to keep in regular contact with the business during the life of the loan to be able to anticipate any bumps along the way.
By building relationships and working together with borrowers, we are often able to provide follow-on loans with companies that are known quantities.
Society has adjusted to the post Covid-19 environment, but we now face other pressing challenges, including a cost of living crisis and a war in Europe. Given these uncertainties, we continue to be very cautious both about providing new loans and managing the existing portfolio. We are pleased to report that all our borrowers are in reasonably good shape and have continued to repay us on time.
The post pandemic environment has accelerated a trend that started with the 2008 financial crisis; banks have been more reluctant to lend to SMEs, making the finance landscape more complicated for businesses to navigate. This has opened the door for alternative lenders such as private debt funds, including the companies that are part of the PEPS lending strategy.
We expect demand for borrowing from the SME sector to continue to be high; our challenge is to continue to find the right opportunities.
We are keen to exploit potential in the infrastructure and energy transition sectors as we look to fulfil our net zero commitments to help tackle climate change.
Although there will be challenges from rising inflation and supply chain interruption, we have a good pipeline of near-term prospects and have had an encouraging start to 2023.
Estate planning services are not suitable for everyone. They are high risk investments and require a longer investment term. You may lose all the money you invest. It is therefore important that you understand the key risks:
You may lose money: the value of your investments may go down as well as up and investors may not get back the full amount invested. Investing in smaller companies generally carries higher risk than those listed on a main stock exchange.
Tax reliefs can not be guaranteed: tax treatment depends on individual circumstances and tax rules could change in the future.
No guarantee of liquidity: shares in unquoted companies may be harder to sell and therefore there is no guarantee that withdrawals can be paid when requested.
The contents of this article should not be construed as investment, tax, financial or legal advice. We recommend that you seek advice from a regulated Financial Adviser.
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Find out more about the ProVen VCTs’ annual shareholder event, which featured insights from Beringea, the investment manager, the boards of the two funds, as well as several of the companies from the portfolio
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