Business Finance Options - December 2010


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Business Finance Options - December 2010

  1. 1. Business Finance Options – The Choices Simplified Business Link A 2 F
  2. 2. Introduction Mike Stutter & Andy Weeks Business Finance Advisers A 2 F
  3. 3. Agenda <ul><li>Finance - what are the options? </li></ul><ul><li>Expectations of funders </li></ul><ul><li>Debt and Equity </li></ul><ul><li>Government & Regional finance schemes </li></ul><ul><li>Preparing for funding & business plans </li></ul><ul><li>Additional support from Business Link </li></ul>A 2 F
  4. 4. Finance- what are the options? <ul><li>Debt and Equity – main concepts and differences </li></ul><ul><li>The affects of equity dilution and the risks of debt to a company </li></ul><ul><li>Financing must be driven by the business strategy, not vice versa </li></ul>A 2 F
  5. 5. Types of Finance <ul><li>Bank Lending - Overdrafts & Loans </li></ul><ul><li>Enterprise Finance Guarantee </li></ul><ul><li>Asset Finance </li></ul><ul><li>Factoring and Invoice Discounting </li></ul><ul><li>Regional Funds & Secondary Lenders </li></ul>A 2 F
  6. 6. <ul><li>Historically provide Overdrafts and Loans </li></ul><ul><li>Requirements :- </li></ul><ul><li>Demonstrable ability to repay </li></ul><ul><li>Tangible Security e.g. Freehold Deeds, Life Policies ,personal guarantees etc. </li></ul><ul><li>Financial Viability (Ratios) </li></ul><ul><li>% margin above base rate </li></ul><ul><li>Track record </li></ul>Banks A 2 F
  7. 7. Working Capital <ul><li>Debtors </li></ul><ul><li>Stock </li></ul><ul><li>Work in Progress </li></ul><ul><li>Creditors </li></ul>A 2 F
  8. 8. Ratios <ul><li>Stake </li></ul><ul><li>Current Ratio (Assets V Liabilities) </li></ul><ul><li>Net Worth (Solvency) </li></ul><ul><li>Interest Cover (Serviceability) </li></ul>A 2 F
  9. 9. Asset Finance <ul><li>Purchase of Equipment </li></ul><ul><li>Refinance of existing equipment i.e. buy back </li></ul><ul><li>Security is the asset but additional security may be required such as personal guarantees or charge over property. </li></ul>A 2 F
  10. 10. Factoring and Invoice Discounting - <ul><ul><ul><li>Finance is tailored to working capital needs </li></ul></ul></ul><ul><ul><ul><li>‘ Automatic’ support for growth </li></ul></ul></ul><ul><ul><ul><li>Security is the invoice raised </li></ul></ul></ul><ul><ul><ul><li>Leaves other business assets available as security </li></ul></ul></ul><ul><ul><ul><li>Care old perception of factoring is lending of last resort </li></ul></ul></ul><ul><ul><ul><li>Customer relationships may be damaged (factoring) </li></ul></ul></ul><ul><ul><ul><li>If sales reduce , the facility will reduce. </li></ul></ul></ul>A 2 F
  11. 11. Enterprise Finance Guarantee (EFG) <ul><ul><li>Replaces SFLGS </li></ul></ul><ul><ul><li>Accredited Lenders </li></ul></ul><ul><ul><li>Min £1K –Max. £1m </li></ul></ul><ul><ul><li>Currently 75% of debt guaranteed by Government </li></ul></ul><ul><ul><li>Premium of 2% is payable </li></ul></ul><ul><ul><li>New credit lines & refinancing of existing overdrafts permitted </li></ul></ul><ul><ul><li>Personal Security allowable – but unsupported </li></ul></ul>A 2 F
  12. 12. Regional Schemes & Secondary Lenders <ul><li>South West Loan Fund </li></ul><ul><li>Small Loan Scheme – max £50k </li></ul><ul><li>Business Loan Scheme - £50k+ </li></ul><ul><li>Max 5 years </li></ul><ul><li>Solvent growth businesses </li></ul><ul><li>Carbon Trust Loans - Equipment </li></ul><ul><li>Other Locally Based Regional Funders e.g Enterprise Development Funds </li></ul>A 2 F
  13. 13. Equity and where to find it <ul><li>The nature of company ownership </li></ul><ul><ul><li>Must be Limited Company </li></ul></ul><ul><li>Sources </li></ul><ul><ul><li>Venture Capital and private equity </li></ul></ul><ul><ul><li>Business Angels </li></ul></ul><ul><ul><li>SWAIN </li></ul></ul><ul><ul><li>Large accountancy practices </li></ul></ul><ul><ul><li>Beer & Associates </li></ul></ul><ul><ul><li>Friends, Family, Staff </li></ul></ul>A 2 F
  14. 14. Equity - statistics <ul><li>Only 6% of private equity is invested in start-up or early stage companies </li></ul><ul><li>Most equity is invested in more mature, larger companies </li></ul><ul><li>Success rates with applications for funding = 1% with VCs and 5-10% with business angels </li></ul><ul><li>So it’s not that easy to get equity funding! </li></ul>A 2 F
  15. 15. Expectations of funders - equity <ul><li>Equity investors </li></ul><ul><ul><li>Exit strategy - Trade sale, Management Buy Out, or Flotation in 3+ years </li></ul></ul><ul><ul><li>Realistic Valuation </li></ul></ul><ul><ul><li>High Returns required </li></ul></ul>A 2 F
  16. 16. Equity <ul><ul><li>No interest cost </li></ul></ul><ul><ul><li>No security needed </li></ul></ul><ul><ul><li>No repayment of capital </li></ul></ul><ul><ul><li>Potential skills of investors, or strategic partner </li></ul></ul><ul><ul><li>Leverage for debt </li></ul></ul><ul><ul><li>Dilution of ownership </li></ul></ul><ul><ul><li>‘ Cost’ (high returns demanded) </li></ul></ul><ul><ul><li>Lead time to obtain it </li></ul></ul>A 2 F
  17. 17. The funding process and costs <ul><li>How long it takes to raise debt or equity </li></ul><ul><li>Negotiation of terms </li></ul><ul><li>Due diligence - lots of questions </li></ul><ul><li>Legal documents – far more if you are raising equity </li></ul><ul><li>Costs - manage them proactively </li></ul>A 2 F
  18. 18. Business plans and forecasts - getting them right <ul><li>Contents -10/12 pages +appendices as appropriate </li></ul><ul><li>2 page Executive summary </li></ul><ul><li>Do It Yourself! - must be written by management, not by your accountant </li></ul><ul><li>Use an accountant to help produce the financial forecasts </li></ul><ul><li>Refer to BUSINESS LINK website for guidance </li></ul><ul><li>Be clear on product and route to market </li></ul>A 2 F
  19. 19. <ul><li>1:1 finance advice (telephone/clinic/site visit) </li></ul><ul><li>Information – website & call centre 0845 600 9966 </li></ul><ul><li>Local Business Link adviser </li></ul><ul><li>Specialist advice – IT, Marketing, Innovation, Environmental, Skills </li></ul><ul><li>Grant potential – LMAS, IYRE </li></ul>Further support from Business Link A 2 F
  20. 20. Questions ? A 2 F