Programme activity and marketing
This chapter looks at trends in the take-up of loans under LAS since it began in 1999. It looks at changes in the number, size and geographical distribution of LAS loans. It also looks at how effective the marketing of the scheme has been. The assessment is based on reviewing the database as well as feedback from businesses, programme staff and stakeholders.
Trends in programme activity since 1999
Number of applications
The programme has shown a steady increase in its scale of activity since it started in 1999. As Figure 1 shows the number of applications remained broadly the same between 2000 and 2004, with the exception of 2003 when there was an upturn in the number. However since 2004 there has been a steep increase, and in 2006 there will be an estimated 54 applications (based on the 36 lodged up to the end of August).
Figure 1 Number of applications by year
Source: Wise Group: Loan Action Scotland Database 2006 (*estimate based on figures to 28/08/06)
Amount of loan
As Figure 2 shows the total amount of loan funding approved has increased from just over £250,000 in 2004 to around £675,000 in 2005. Assuming the approval rates and average loan amounts remain the same, we estimate that the total loan amount approved during 2006 will be almost £1M.
Figure 2 Total loan amount approved by year of initial contact
Source: Wise Group: Loan Action Scotland Database 2006. *estimate based on figures to 28/08/06
Average loan size
The average amount of loan approved per application has shown a steadily increasing trend from just over £16,000 in 1999 to a peak of £24,000 in 2005. So far in 2006, the average loan amount is at around £21,000 per application. This suggests that a large number of loans are towards the smaller end of the scale rather than at the £50,000 maximum level.
Figure 3 Average size of loans approved by year of first contact
Source: Wise Group: Loan Action Scotland Database 2006
Approval rate has risen
The rate of approval of loans has varied significantly since the programme began. In 1999, there were only two applications which were both approved. The following year the approval rate was 83%. The approval rate declined in both 2001 and 2002 to a low of 55%. However since 2003 the approval rate rose each year to reach 96% for the 28 applications which have been decided in 2006 so far. In 2003 the eligibility criteria were relaxed in response to the view that the scheme had become too risk-averse.
Length of time for decision has dropped
The time taken from initial contact with businesses to an offer of loan being made varies significantly from just a few days to over a year. As Figure 4 shows, the average time taken to approve loans has dropped dramatically since 2003 to just 15 days for the 27 loans approved in 2006 so far.
Figure 4 Loan approval rate and average days taken to approve by year of first contact
Source: Wise Group: Loan Action Scotland Database 2006
Average time to reject an application has fallen sharply
The average time taken to reject a loan application is longer than for approvals. This is likely to be because businesses are not providing information or are experiencing trading difficulties. The average time taken to reject applications has also dropped markedly, from over two years in 2000 to just 26 days in 2006.
Figure 5 Average number of days to reject loan application by year of initial contact
Source: Wise Group: Loan Action Scotland Database 2006
Geographical focus
It appears that there is a much higher uptake of LAS support in rural parts of Scotland, with a consequent under-representation of applications from urban areas. This is particularly so in the larger cities. Figure 6 compares the proportion of LAS applications to the share of small and medium sized businesses across Scotland. It shows that Glasgow is the most under-represented Local Authority area, followed by Edinburgh, Aberdeen, North Lanarkshire and Dundee. Indeed there have been no applications from Dundee or Inverclyde since the LAS programme began.
Figure 6 Comparison of LAS applications and business base by Local Authority area (%)
Local authority | % share of 1-199 employee businesses | Share of LAS applications | Difference* |
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Glasgow City | 12.00% | 4.70% | -7.30% |
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Edinburgh, City of | 10.90% | 6.30% | -4.60% |
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Aberdeen City | 5.30% | 1.10% | -4.20% |
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North Lanarkshire | 5.10% | 2.60% | -2.50% |
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Dundee City | 2.40% | 0.00% | -2.40% |
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Renfrewshire | 2.90% | 1.10% | -1.80% |
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Fife | 5.80% | 4.20% | -1.60% |
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East Dunbartonshire | 1.60% | 0.50% | -1.10% |
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Inverclyde | 1.10% | 0.00% | -1.10% |
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East Renfrewshire | 1.40% | 0.50% | -0.90% |
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Aberdeenshire | 5.50% | 4.70% | -0.80% |
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West Dunbartonshire | 1.20% | 0.50% | -0.70% |
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Moray | 1.70% | 1.10% | -0.60% |
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South Lanarkshire | 5.10% | 4.70% | -0.40% |
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Eilean Siar | 0.70% | 0.50% | -0.20% |
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Clackmannanshire | 0.70% | 0.50% | -0.20% |
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South Ayrshire | 2.20% | 2.10% | -0.10% |
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Stirling | 2.20% | 2.10% | -0.10% |
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Falkirk | 2.20% | 2.60% | 0.40% |
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North Ayrshire | 2.20% | 2.60% | 0.40% |
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Perthshire & Kinross | 3.30% | 4.20% | 0.90% |
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Orkney Islands | 0.60% | 1.60% | 1.00% |
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Angus | 2.00% | 3.20% | 1.20% |
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East Ayrshire | 1.90% | 3.20% | 1.30% |
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Shetland Islands | 0.80% | 2.10% | 1.30% |
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East Lothian | 1.50% | 3.20% | 1.70% |
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Argyll & Bute | 2.40% | 4.70% | 2.30% |
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Dumfries & Galloway | 3.20% | 6.30% | 3.10% |
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Scottish Borders | 2.70% | 5.80% | 3.10% |
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Highland | 5.90% | 9.50% | 3.60% |
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West Lothian | 2.60% | 6.30% | 3.70% |
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Midlothian | 1.20% | 7.40% | 6.20% |
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Source: Loan Action Scotland Database and ABI data (2004). *The ABI data can be used as a broad proxy only as it refers to businesses who have 1-199 while LAS targets businesses up to 250 employees.
In contrast there are much higher numbers of applications from more rural areas such as Midlothian, Highland, Scottish Borders, Dumfries and Galloway and Argyll and Bute than would be expected based on the population and business base.
Sector focus
As Figure 7 below shows, LAS applications concentrate more in certain business sectors with more than a quarter coming from the Hotels and Restaurants sector, and a similar proportion coming from Manufacturing businesses. The proportion of applications from the Textiles and Food and Drink sectors is also much higher than their share of businesses across Scotland as a whole. Overall 43% of applications were from the manufacturing sector although it only accounts for 6% of Scottish Businesses.
Conversely there is an under-representation of LAS applications among the Construction sector, Education and Health businesses and Business Services. Given the focus for the scheme is on more energy intensive industries it is perhaps to be expected that there will be more take-up among manufacturing sectors.
Figure 7 Comparison of Loan Applications with overall business profile by sector
Source: Wise Group LAS Database and NOMISABI data 2006
Business motivations
Profit and productivity rather than the environment is main concern
Most businesses appear to be motivated by improving their business profitability or efficiency rather than by purely environmental reasons as Figure 8 shows. And for around a third of businesses, the loan application was motivated by the need to replace or upgrade plant or machinery that is out of date. This might be a good argument for involving suppliers in helping to market the scheme.
Figure 8 Motivations for loan application
Source: Hall Aitken Survey
- It was a 30-40 year old boiler and energy costs were accounting for around 8% of our site costs. (Hotel)
- There were six different heating systems and it was costing 1.4% of turnover. We wanted to make it simpler. And we were also thinking about being a green tourism business. (Hotel)
- I went on a training course with REAP which made me far more aware of how much environmental savings I could make. (Food processor)
Marketing
A network of six regional business advisors, based in the Energy Saving Trust, are responsible for promoting the scheme to businesses. As the box illustrates there were a wide variety of marketing approaches being used including seminars and events, newspaper adverts and work with local agencies.
In terms of materials, the programme separated the marketing and application documentation in 2004. There are links with business support and development organisations, particularly Green Tourism. A webpage for the programme also exists on the Energy Saving Trust's website.
Wide range of routes… |
Green in the Park Event digging around on the net business link contact with SEEO after we joined Green Tourism the council family business seminar at Caledonian University REAP at Midlothian CoC SCARF an article in the Herald |
Important role of Enterprise Companies in marketing
There is a wide range of routes for businesses to find out about Loan Action Scotland. Figure 9 shows that the Local Enterprise Company network accounts for how one in five businesses found out about the scheme. However the Business advisors who have the key responsibility for marketing the scheme were identified as the source of referral for only one in six businesses. The Carbon Trust is also important as a source of referral, being identified by 14% of businesses responding to our survey.
Figure 9 How businesses found out about Loan Action Scotland
Source: Hall Aitken Survey 2006
Background of loan applicant a significant factor
Interviews with the applicants showed that many had a general knowledge and awareness that something like Loan Action Scotland existed. This seemed to come from either having a background in the public sector or having a genuine interest in environmental issues. As a result, many businesses had been proactive about looking for the loan:
- I'd previously worked with the SDA so I knew there was going to be something out there (manufacturer)
- I'd been involved with projects elsewhere where Loan Action Scotland had been used (public sector)
- I'm a self-trained heating engineer. I had thought about putting a wind turbine up for my previous hotel.
- I got the business idea from my time in the US. It's by its nature concerned with energy efficiency and waste. I'd a lot of experience with energy and fuel efficiency from my time with the AA (laundry service)
Loan targets are a barrier to more businesses taking part
I don't think the EST did the volume it could have ( EST interviewee) Really very little marketing going on at the moment (business advisor)
It has taken a while to get new marketing material (business advisor)
Other businesses are not aware, I've never seen it promoted (business) |
Loan Action Scotland has broadly met its targets for applications every year. The target has been set at around 30 each year to reflect the size of the loan pot.
However this has clearly limited the marketing activities of programme staff. There was concern about over-promoting the scheme and having to turn away applicants. Another issue is that business advisors are not always sure of how much money is left in the pot at any given time.
Programme lacks a strong web presence
The link with the Energy Saving Trust does create issues. The programme has a weak web presence - with a single page on the Energy Saving Trust's website. A web search for LAS actually brings up the Highlands and Islands Enterprise website rather than this page.
Variable marketing capacity of business advisors
All the business advisors appear technically competent but their level and understanding of sales and marketing varies widely. Some staff are described as highly proficient technically while others are described as 'natural born sales people'. Ideas for improved marketing from the advisors demonstrated the difference in their thinking about what would be a successful marketing approach.
Geographical focus
There also appear to be some issue over the geographical focus and remit of the advisors. There is a suggestion that too much resource is dedicated to rural areas at the expense of urban areas. For example, there have been the same amount of applications from Argyll as from Glasgow - despite Glasgow having around six times more businesses in the 1-199 size band. Other urban areas like Inverclyde and Dundee have had no applications since the programme began.
Conclusions
The LAS programme has grown significantly in scale since it began in 1999, and particularly since 2003 when the volume of loans began to increase. The overall loan amount is likely to be around £1M in 2006.
Loan eligibility criteria were relaxed in 2003 following a high proportion of applications being turned down (almost half). This has probably helped the programme to increase its total loan amount.
The time taken to give businesses a decision on their application has also improved significantly. This has dropped from around four months in 2003 to just 15 days in 2006. This may also be a positive factor in the increasing number of applications with businesses able to access the money quickly.
The programme has a higher profile within some areas and among certain business sectors. However there are much lower proportions of businesses applying for loans in urban Scotland; and particularly the four largest cities. This may have much to do with the advisor structure perhaps favouring rural areas. This suggests a need for more proactive marketing in Scotland's cities, perhaps focusing on key sectors that are high energy users.
There is a widely held view that marketing for the scheme needs to be more effective. Businesses were more likely to identify Local Enterprise Companies as having told them about the scheme, rather than the Business Advisors who are tasked with marketing it.
Regional business advisors have been wary about promoting the scheme too actively because the resources available are limited. There is also a highly variable marketing capacity among these advisors. The limited web presence of the scheme also undermines marketing efforts to some extent.