The Perfect Match? SME Contributions and ERDF

In the current economic climate, stakeholders across England’s regions are keen to bring forward projects that can provide a much-needed boost to local enterprise.  They know that ERDF funding is available for this, but in many cases lack the match funding needed to draw it down. One answer is to increase the use of match funding contributions from SMEs (small and medium-sized enterprises).

Using SME contributions to match fund ERDF can be a win-win solution.  It enables projects that can deliver local economic impact with limited public sector funding, and can contribute to achievement of key ERDF programme targets such as job creation, through revenue-based business support. 

There is a mixed pattern of using SME contributions as match across the English ERDF programmes, but we have seen numerous successful examples of this across the five regional programme evaluations we have delivered.  The North East is perhaps at the vanguard of this and has clear published guidance (http://tinyurl.com/85n8qn3).  In other regions take-up is lower.  There are two main reasons for this.

Firstly, many stakeholders are unaware of the mechanism required to enable them to eligibly use SME contributions as match funding.

The mechanism required is actually quite straightforward.  The pitfall to avoid is that if the business support provider is also the ERDF grant recipient, then any income it receives from an SME cannot be counted as match funding (this counts as income under Article 55 of the regulations).  The solution is to have three separate parties involved, as shown below.

Secondly, there needs to be a competent and committed project administrator.

There are a number of risks and costs for the body that takes this on.  These may include provision of match funding to cover project administration, underwriting the match funding to be provided by SMEs, and collecting and maintaining all required paperwork for ERDF audit.

The roles that local authorities, LEPs, universities and business networks have in promoting local economic development point to these bodies being the strongest candidates to take on this role.  As ever the risks are significantly lessened if local bodies are able to understand and clearly evidence demand and likely take-up of support by local SMEs, and if the project administrator is a well-organised body with experience in successfully administering ERDF previously.

Nevertheless, any organisation would need to weigh up the costs and risks of administering the project against the economic benefits the project would bring.

For more information about our ERDF work, on bid writing and programme and project evaluation, please contact Simon Hooton or Stuart Younger on 0161 234 9910.

Posted by Stuart Younger on 09 January 2012