MEDIUM sized firms punch above their weight in Scotland but are being stopped from achieving their potential by a lack of affordable long term funding, sector champions have said.

A report by the CBI and BDO accountants found medium sized businesses make up only 1.9 per cent of the stock of companies in Scotland but generate 16 per cent of private sector revenue and account for 21.5 per cent of total employment.

The study found 70 per cent of mid-sized firms, defined by the CBI as those with turnover of between £10 million and £100m, plan to grow in the coming year.

However, more than half were finding it hard to access a loan for longer than five years, reflecting a short-termist approach on the part of funders.

The CBI said the funding drought could act as a major drag on growth in Scotland.

“Building up a British ‘Mittelstand’ of successful medium-sized businesses is mission critical to our economic future,” said the employers organisation.

“A key part of unlocking their enormous potential is for the Government to fix the funding ladder.”

Martin Gill, head of BDO LLP in Scotland, said the mid-market is fundamental to creating a balanced and sustainable economy.

He suggested the government could tackle the problem simply by adapting existing funding channels.

For example it could offer tax breaks to investors willing to provide debt for at least five years, similar to the way the Venture Capital Trust scheme encourages investors to provide equity funding.

The Enterprise Finance Guarantee scheme could be changed to reward lenders for providing longer-term loans.