Scotland Rural Development Programme 2014-2020 - Consultation on Stage 1 Proposals : An Analysis of Responses

11 Loans (Q27)

11.1 This chapter provides an analysis of responses regarding Section 12 of the consultation document which invited views on the option of SRDP funds being used to provide loan finance for businesses and communities. This was seen as a way of addressing the difficulties that small businesses and community groups experience in accessing loans which could, in turn, sometimes prevent sound projects going ahead. Respondents were asked the following question:

Question 27: What are your views on the merits of providing loans for specific purposes and / or specific sectors? Please explain your views.

11.2 In total, 92 respondents (12 individuals and 80 organisations) answered Question 27.

11.3 Given that no specific proposal was elaborated in the consultation document, respondents' comments were highly diverse and based on a wide range of (often conflicting) assumptions about what the basic approach would involve. In particular respondents made different assumptions about the extent to which it was proposed to replace (some) grants with loans, or to allocate additional funds to SRDP to cover the introduction of a new funding stream.

11.4 Nevertheless, there was general agreement that loans could be useful in some circumstances.

Views in support of providing loans

11.5 Those who agreed with the proposal felt that the availability of loans would:

• Allow funds to go further by allowing SRDP monies to be recycled
• Have the potential to address the significant issue of cash flow for community organisations and small businesses
• Be especially valuable for small organisations (crofters, small holders, SMEs).

Caveats and disagreement with providing loans

11.6 Caveats and disagreements with providing loans were that:

• Loans would require additional administration: Loan applications would have to be accompanied by comprehensive business plans which would take time to develop. This was important to be confident that the loan could be repaid. Questions were also raised about how decisions would be made.
• Other alternatives should be considered: The point was made that the issue of cash flow might be better ameliorated through a "Cash Flow Fund" or advance payment from the grant with appropriate conditions attached. It was also suggested that a more efficient grant administration process, which minimises delays to payment, would improve the current situation.
• Loans are not appropriate for projects aimed at public benefit: Respondents thought loans should only apply for commercial projects aimed at generating a financial return.
• Government should not provide loans where other options exist: There was a view that this was a role for commercial organisations, not Government. Moreover, there are too many demands on SRDP funds and this is not a priority. There are alternative sources of funding available.

Other issues

11.7 Several respondents noted the importance of learning from experience. They referred to existing loan schemes which might provide useful learning in this area; The Highland LEADER scheme and West of Scotland Loan Fund were noted. Other respondents noted the importance of monitoring and evaluating any scheme introduced.

11.8 A substantial amount of detailed comment on existing and historical financial instruments was offered. One respondent highlighted the importance of developing new financial instruments for the next SRDP programme.