Posted on Thursday 17 January 2013 by Ulster Business
The chief investment officer at WhiteRock Capital Partners expects to lend as much as £10m this year as manager of the Invest NI-backed Growth Loan Fund.
That has been borne out in the strong demand for mezzanine finance which the managers of the Growth Loan Fund have experienced.
Paul Millar, chief investment officer of WhiteRock Capital Partners, says his team has had over 150 loan enquiries since the fund became operational at the end of June. Since it started investing in September some 15 loans have been approved by its investment committee worth £3.5m, an average of over £200,000 per deal.
Finance for the £50m Growth Loan Fund has been provided by Invest NI and pension fund the Northern Ireland Local Government Officers' Superannuation Committee (NILGOSC).
It will provide primarily unsecured loans of between £50,000 and £500,000 over the next five years to businesses that can demonstrate growth and export potential, with the manufacturing, engineering or tradable services sector being targeted.
The fund was set up by Invest NI to address market failure but Millar stresses it isn't there to compete with banks, rather to provide an additional resource which banks can no longer stretch to under their new operating models.
"We're not replacing traditional bank funding, we're just providing additional top slice funding. There is a higher interest rate because it is unsecured, but that extra facility allows companies to go forward and grow," he said.
"We've been in and presented to all the main banks here three times. We've had a very good response from them. They really see it as complementary."
And he should know. An accountant by training with experience gained at both KPMG and Deloitte, Millar spent the seven years prior to joining WhiteRock in corporate and business banking roles at Bank of Ireland.
The loan fund's pricing is higher than traditional bank lending at 8% to 9% and it can take a 2% stake in a company that defaults on repayments. But Millar doesn't think that will be an issue because loans are being made by WhiteRock's investment committee based on cashflow.
"These are not grants we're handing out, we have a very robust process in house and then we go out to the applicant's business and spend a week doing due diligence," he said.
"It's not a case of us saying, here's £300,000, you don't have to start paying for it for 12 months. We're saying no, you've got to be able to afford the monthly loan repayments from month one. If that company can't afford it, we don't provide the loan," he explains.
"Invest NI and NILGOSC have put the £50m in but they want it back. I could have had 50 deals done in the first month by picking the first 50 guys through the door. Lending is about getting it back. If we do our job right here, these companies will have paid the money back in five years and there's no burden on the taxpayer."
Millar further adds: "What's giving us a lot of confidence is the quality of the businesses coming to us. Of those 150 enquiries, 25% of those loan enquiries have come from businesses with a turnover of over £3m. There is a lot of it at the upper end. We have demand from companies with turnover right up to £25m."
Millar says that while the banking model has changed for the right reasons, it gives him comfort as a former banker knowing that five years ago what now falls under mezzanine funding was being provided by the banks.
"The Loan Fund that we have here in NI, that fund has been in place in the north east of England for 10 years. These are new things in NI but they are not new anywhere else. This sort of funding structure has been running for about 10 years in Scotland as well. It has worked in other regions and I don't see any reason it won't work here." he said.
There are not many corporate bankers in Belfast doing a deal a week and because the pipeline is so strong, Millar already thinks the fund may need to be expanded.
"We're already going back to Invest NI and NILGOSC to say that if we keep going the way the demand is facing here, we don't think we're going to have enough funds. We think the demand is nearer £300,000 a deal, but we still think 50 deals per annum is achievable. That would be £15m a year. So maybe it should be a £75m fund," he said.
"We think we will comfortably do £10m in a year. That's why we're flagging it now. I am one of the few people in NI who has unsecured capital available to lend. What I don't want to be doing is sitting in a couple of years time in a position where I'm telling someone I can't invest in them because I've got no capital. If we're really saying we think demand is at the £15m level, three years into a five-year fund we have no funding left," he adds.
"The positive view of that is that it endorses the initial decision to launch the fund."