Insider Media Limited

The private sector will weed out the weaker businesses once it begins to take the weight of the public sector axe. That’s according to Stratford-upon-Avon-based industrialist David Grove, who spoke to Insider. Grove said that badly run companies would start to struggle to find available finance, which “wouldn’t be a bad thing” in many cases. He also expressed his support for many of the banks making “sensible decisions” when concerning lending to businesses.

Grove is the chief executive of private investment firm Grove Industries, which comprises a portfolio of nine companies.

He said: “I’ve seen a lot of badly run businesses, with issues such as bonuses for the people at the top, but they’ll be weeded out as the private sector now has to prove itself with all the public cuts.

“Many businesses will struggle to find finance if banks won’t lend. They now need to prove why they’re a good investment, why they should be lent money, rather than expect cash to be given out to anyone.”

Grove, whose business has recently celebrated its 20th anniversary, said that although he recognised that banks had made some grave errors in the past, many were now merely taking on a sensible approach to lending.

“The banks do get a very bad press – sometimes justifiably. But they have had to change the way they worked – banks are asking how revenue will be generated, and how the business will survive. If these firms are unprepared and unaware, that will cost them an investment.”

He conceded that under their more stringent regulations, banks would miss out on good investment opportunities – but he added, “They’ll also be missing out on the bad ones which they may have chosen to finance ten years ago”.

One of the companies within Grove’s portfolio, Key Technlogies, was one of several to float on Birmingham’s local stock exchange, InvestBX. Last month, regional development agency Advantage West Midlands, which manages InvestBX, announced that unless a private buyer could be found, the exchange would be liquidated.

Grove said that although InvestBX had done an “excellent job” in the case of Key Technologies, there were perhaps too many alternative sources of investment for the project to continue.

“It has done a good job, undoubtedly,” he said. “But small businesses can find finance from other sources now, from the European Regional Development Fund, for example, and closer to home.”

He also voiced concerns for start up businesses which are seeking finance.

“Unfortunately, it’s very difficult to find people willing to back start-up businesses,” he said. “It’s very sad, because every businesses is a start-up at one point – but they’re a risk, especially now. It’s a much safer option to back a company that has a proven record, which has figures to back up what it promises.

“Sadly, as things are now, many investors would choose to back businesses which are about to enjoy growth – not the ones which are too risky to take a chance.”