Royal Bank of Scotland's Innovative Approach to Saving Small Businesses

Strategic Insights -

In the heart of Lancashire, Hoyle-Butterworth, a textile business, is slowly getting back on its feet after being hit by the recession and a failed management buyout. The company has an unlikely saviour - Royal Bank of Scotland, which has bought a 33% stake and converted much of the debt into equity. This radical approach is part of an initiative to help small and medium-sized businesses with potential for recovery. If successful, it may encourage other banks to follow suit, saving more small firms and reducing dependence on overdraft funding.

Key Takeaways:

  • Royal Bank of Scotland has taken a 33% stake in Hoyle-Butterworth, a textile business, and converted much of the debt into equity.
  • The bank's initiative aims to help small and medium-sized businesses with potential for recovery, encouraging other banks to follow suit.
  • The scheme involves teams monitoring and supporting smaller firms, examining other companies for potential treatment, and providing a supportive yet non-interfering approach.
  • Companies with the bank's equity stake need not worry about being sold quickly, as Royal Bank has eliminated five-year exit clauses in its contracts.
  • Other banks, such as Midland Bank, are indicating a shift towards equity finance, with Royal Bank's policy being praised as ahead of its time.
  • The companies helped by the scheme are reported to be stronger and better now than before, with some even breaking-even after struggling with debt burdens.

Statistics:

  • Hoyle-Butterworth's annual sales: approximately £8 million (1994).
  • The debt burden Hoyle-Butterworth was struggling with: substantial enough to threaten the company's survival.
  • Percentage of stake Royal Bank of Scotland took in Hoyle-Butterworth: 33%.

Sources:

  • The Sunday Times, 1994