Finance in the South West - presentation on debt, equity, grants, business support.

1. Finance in the
South West 2015
May we live in
interesting times…
Sharon Austen
Partner

2. www.francisclark.co.uk
Administration
Admin
Timetable
Slides – available on request or at http://www.slideshare.net/FrancisClarkLLP
Questions – Please keep questions until coffee/lunch
Presenters…

3. www.francisclark.co.uk
Presenters and other participants
…and many more

4. www.francisclark.co.uk
Structure of morning
• Background, Debt and Investment ready
(8.30am to 9.50am)
• Key note speaker
• LEP and SME
• Debt and Investment ready (part 1)
• Equity, Grants and Investment ready (part 2)
(10.10am to 11.25am)
• An SME perspective, business support and
closing address (11.45am to 1pm)
• Q&A one to one / Networking (1pm to 2pm)

5. www.francisclark.co.uk
Twitter
Follow us on twitter @francisclarkllp
Tweet about this event using
#FCFinanceSW

6. www.francisclark.co.uk
Key note speaker
Declan Curry
• Award winning business and
economics broadcaster
• Business presenter for the BBC for
more than a decade
• Broadcast in the United States and
Australia as well as throughout the
UK

7. www.francisclark.co.uk
Declan Curry
Finance in the South West
2015

8. Chris Garcia
“Driving growth in the Heart of the SW”

9. Reposition the Heart of the
South West: our prosperity,
profile and reputation,
nationally and globally.
Connecting people, places,
businesses and ideas to
transform our economy,
securing investment in
infrastructure and skills to
create more jobs and enable
more rewarding careers.
Our LEP is working to

10. What do we do
• Common priorities
• Partnerships
• Attract resources
• Make a difference to
prosperity of businesses
and employees

11. Strategy - Our LEP
priorities in a nutshell
Creating the Conditions for
Growth
Maximising Productivity and
Employment Opportunities
Building on our
Distinctiveness
Place
Infrastructure for growth:
 Transport and accessibility
 Digital infrastructure
 Sustainable solutions for
flood management
 Energy Infrastructure
The infrastructure and facilities
to create more and better
employment:
 Enterprise infrastructure
 Strategic employment sites
 Unlocking housing growth
The infrastructure and facilities
needed to support higher value
growth:
 Specialist marine sites
 Innovation infrastructure
 Our environmental assets
Business
Creating a favourable business
environment
 A simpler, more accessible,
business support system
Achieving more sustainable and
broadly based business growth:
 Reaching new markets
 Globalisation
Supporting higher value growth:
 Innovation through Smart
Specialisation
 Building innovation capacity
People
Businesses and individuals can
reach their potential:
 Skills infrastructure
 Accessibility to
education/employment
 Employer engagement and
ownership
Increasing employment,
progression and workforce
skills.
 Moving people into
employment
 Supporting people to
progress to better jobs
 Improving workforce skills
Creating a world class workforce
to support higher value growth:
 Enterprise and business skills
 Technical and higher level
 Skills for our
transformational
opportunities.

12. Achieving our
aspirations
Strategy Resources Delivery
Management
Our
Aspirations
for
Jobs
Growth
&
Prosperity
People
Place
Business
Monitoring and Evaluation of Performance
Marketing and Communications
Back office financial accounting, audit, and procurement
Partnership
LA teams

13. Successes
• GPF finance for stalled
infrastructure
• Rural Growth Network
initiatives
• Finance for business
growth
• Hinkley Growth Deal 14-15
• Growth Deal 1
• Growth Deal 2

14. Going forward
Our opportunities and challenges
We know what we have to do but our work is dependent on:
• Funding (we don’t have revenue; ESIF delays a real problem)
• Joined up focus / support from govt to make things happen
• Partnership – with intermediaries and business
Our focus is now on DELIVERY- Lots of
contracts going out door for April

15. How can the LEP help –
Its your LEP
What the LEP is not:
An agency of HMG like the RDA designed to act as a delivery
arm of central gov, nor are we simply a funder body.
What the LEP is:
A genuinely local platform for collaboration across public
and private sectors, to achieve mutual economic aims.
We support:
• Funding bids for national Government – e.g. Growth Deal
Directing European funds to where they’re needed most
• Influencing national Government strategy
• Strategic partnerships – e.g. with neighboring LEPs

16. We are always keen to hear your priorities
What can we do more of??
heartofswlep.co.uk

17. Debt – types and
sources an
overview (do not
forget the
Banks…)
Richard Wadman
Corporate Finance Director
(Richard.Wadman@francisclark.co.uk)

18. www.francisclark.co.uk
Banks: net lending v gross lending
Bank of England, Trends in Lending, January 2015

19. www.francisclark.co.uk
• Total borrowing facilities
£112.8bn
• £7.9bn of new SME
borrowing approved Q3 2014
• A 13% increase on same Q 2013
• and highest amount since 2011
• Borrowing “broadly based”
across geography and
industry sectors (demand
from ME strong)
But banks are not not lending
Source: BBA Bank support for SMEs – 3rd Quarter 2014

20. www.francisclark.co.uk
• ‘Net lending’ perhaps not the full story
• Cash deposits increasing as debt repaid
• High approval rates
• Lenders are ‘open for business’ (“truly open”)
• Significant variation in approach/process
But banks are not not lending

21. www.francisclark.co.uk
Rates and Terms
Source: Bank of England
3.00
3.50
4.00
4.50
5.00
5.50
Jan2009
May2009
Sep2009
Jan2010
May2010
Sep2010
Jan2011
May2011
Sep2011
Jan2012
May2012
Sep2012
Jan2013
May2013
Sep2013
Jan2014
May2014
Sep2014
(%marginoverbase)
SME Lending Rates (BofE)
All SMEs
Small
Medium

22. www.francisclark.co.uk
Funding For Lending
Banks borrow from Bank of England (using business loans
and mortgages as security)
• Reduces interests rate which Bank borrows at
• The more a Bank lends, the more they can borrow and the
lower the fees on borrowing
• Lower interest rates on Loans (1% discount/ cash back)
• Fees being waived
• Increased competition for ‘good customers’

23. www.francisclark.co.uk
Enterprise Finance Guarantee Scheme
• Designed for businesses that have been turned down by
lenders due to insufficient security
• Decision making on individual loans is fully delegated to
the participating lenders
• Government guarantees 75%. Borrower pays a 2% per
annum premium
• Lenders entitled to take security, personal guarantees but
prohibited from charge over principal private residence
• Export variant - ExEFG

24. www.francisclark.co.uk
Regional Growth Fund –
Assisted Asset Purchase
• Funding for purchases of new plant and machinery
• Grant for up to 20% of asset cost for small businesses,
10% for medium
• Criteria apply – job creation/protected, size and location
• Limitations of amount per job apply
• Taxable and state aid considerations

25. www.francisclark.co.uk
Lending – Alternative sources, including
• CDFI
• New challenger banks
• P2P continues to grow (e.g., P2P business lending up 250%)
• Bonds
• Asset backed (plant & machinery, invoices, stock)
• Many others and ‘new ideas’ – what is appropriate for the situation?
• Capital Market Unions (European Commission project to free up €bn’s
of funding for SMEs)
• Growing Places Fund (example of UK government intervention)

26. www.francisclark.co.uk
Summary
• Banks/debt lenders are keen – but make them keen for your
business by being properly prepared
• Consider the form and source of funding most appropriate for
your business situation
• Market test your terms and understand if you fit into any
lending ‘schemes’ to save costs

27. Chris Burt
Fund Manager
SWIG Finance

28. SWIG Finance
• Who we are
• What we do
• Why we do it
• Alternative funding is nothing new..

30. “
...a CDFI
“Community Development Finance
Institutions (CDFIs) lend money to businesses
(that) struggle to get finance from high street
banks. They are social enterprises that invest in
customers and communities”
SWIG = the South West’s CDFI
www.swigfinance.co.uk
01872 223883
info@swigfinance.co.uk

31. SWIG Finance
South West wide
Offices in Truro and Bristol
Investment since 2009 – Dec 2014
Percentages = of total lending by value

32. Who can we support?
• Start Up and existing SMEs
• Investing in growth or efficiency
• Jobs created or safeguarded
• Can’t access sufficient bank finance

33. Beran Instruments
• North Devon
• 4 loans for growth
between 1999 and
2006 from SWIG
• Grown from 21 staff
members to 130 with
a turnover £9 million

34. Stay in touch!
Sign up to our newsletter
www.swigfinance.co.uk
info@swigfinance.co.uk
01872 223883

35. James Lovett
Business Development Manager
A Business Lending Revolution
An introduction to marketplace lending and how it
can help your business grow

36. What is peer-to-peer lending?
Traditional lending
Peer-to-peer lending
4

37. A simple model: Lenders can spread risk by lending
small amounts to hundreds of businesses
Business loan
Loan parts
Loan parts
Loan parts
Loan parts
Loan parts
Loan parts
Loan parts
Loan parts
Loan parts
5

38. The growth of alternative options is creating
healthy competition in the market
6.2
1.1
0
2
4
6
8
Total SME lending by provider
Bank lending Non-bank lending
Estimated 85% of SME lending is through the
five big banks
Source: Project Merlin, Bank of England; Funding Circle analysis; does not include loan secured on property
Bank lending includes lending from the five big banks: Barclays, HSBC, LBG, RBS and Santander
Lending pm, £bn
UK Business peer-to-peer lending (P2B) has
now surpassed £700 million
0
100
200
300
400
500
600
700
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Millions
Other Business p2p lending Funding Circle lending

39. “71% of SMEs approach
only one provider
of finance”
British Business Bank, 2013
6

40. A global marketplace needs diversity
40
37k retail lenders
Central government
Local government
Passive institutions
Marketplace
for small
business
loans
Active institutions
Unsecured loans
Secured loans
Depth of lendersBreadth of products
Commercial property
Asset finance

41. Unsecured Loan
£5k - £200k
Suitable for a wide range
of purposes
6 months to 5 year term
Rates from 6% (8.3% avg
A+ over 36 months)
Fees between 3-4% of
loan amount
No ERP’s
Secured Loan
£150k - £1m
 All asset security
agreement
 Charge on specific
properties or
assets
Types of borrowing
41
Asset finance
£20k - £1m
 Suitable for a wide
range of hard assets
 Hire purchase
 Flexible on LTV–
100% considered
 Individual deals up
to £250k, credit lines
of up to £1m

42. Funding Circle loans can be used for almost
any purpose
 Working capital
 Buying equipment or assets
 Deposits for property purchase
 Taking on new staff
 General cash-flow
 Buying stock
 General expansion
Replacing an overdraft
Paying down debt
Refurbishment
Growth – buying a new retail unit
Research and development
Marketing
IT upgrade
42

43. 43
Minimum criteria includes
Limited companies, limited liability partnerships & non limited
Established: trading for 3+ years with at least 2 years of filed
accounts
Directors: A good credit history – no CCJs, CVA, CVL or liquidated
companies within past 6 years. UK resident.
Company: Min turnover £50,000, sufficient P&L strength to service
the additional borrowing. Upward growth trend and no consecutive
losses.
Beneficial ownership in UK
Loan supported by PG

44. 44
How to apply
Apply online or use one of our registered introducers
Application reviewed by our credit team – decisions usually take 48 hrs
1
2
3
4
Your loan lists on our marketplace for up to 7 days for lenders to fund
You accept the loan and we transfer the funds to you
Typically14daysfromapplicationtodrawdown

45. Borrower Case Studies
45

46. 46

47. 47

48. 48

49. Thank you
49
James Lovett
Business Development Manager
james.lovett@fundingcircle.com
0203 667 2236

50. Paul Caunter, Ignition Credit

55. • Quick turnaround
• No lengthy application process or forms to complete.
• For deal sizes of up to £50k - 80% of decisions provided
within 4 hours & over £50k within 48 hours or less!
• Documentation completed for you & payment to your
supplier arranged on your behalf.
Simple Process

56. Other Advantages
• Annual Investment Allowance of up to £500k available
until 31.12.2015 & other Tax advantages.
• Funding for Lending Scheme – 1% reduction in
published cost of funds (subscribed lenders only).
• Regional Growth Fund “RGF” of up to 20% deposit
contribution towards purchase of business critical assets
(conditions apply).
• “Asset re-finance” - raise working capital against assets
already owned.

57. • Asset Finance can assist in financing any moveable asset
from Cattle to Caterpillar’s.
• Finance agreements can be tailored to business needs, with
flexibility of terms & repayment schedule.
• Typical finance amounts range from £1k to £1m+
• Security generally taken on the asset alone, depending on
the asset & covenant of borrower.
• Quick & easy to put asset finance in place.
In Summary

58. Many thanks for your time!
Paul Caunter – 01872247208
www.ignitioncredit.co.uk

59. Getting
investment
ready
Andrew Killick
Corporate Finance Partner
(andrew.killick@francisclark.co.uk)

60. www.francisclark.co.uk
Matching requirements
Understand
your
requirements
Understand
funding
options and
funders
requirements
Debt or Equity Risk?

61. www.francisclark.co.uk
The Readiness Process
• When, why and what funding is needed
• Communicating the business proposition - Business
plan and projections
• Viable plan and credible management
• Building the relationship

62. www.francisclark.co.uk
Investment ready – housekeeping
• Compliance and Legal
 Licences / contracts/ legal title?
 IPR ownership in the company?
 Statutory Accounts/management
accounts
 VAT, PAYE/NI, Books and records in
order?

63. www.francisclark.co.uk
Requirements: Grants
• “Project” eligibility – sector, size, location…
• Timescale – prescriptive, process and panels, not
retrospective
• Match funding
• ‘Need for grant’ versus viable proposition
• Other factors - Environment, Equality, on going
requirements

64. www.francisclark.co.uk
Requirements: Debt
• Serviceability & Headroom
• Security / Personal Guarantees
• Conduits for government initiatives
• Covenants – achievable / appropriate?

65. www.francisclark.co.uk
Requirements: Equity
• Exit route and returns to the investor
• Investors expertise vs. loss of independence?
• Be prepared to discuss valuation
• Be aware of FSMA regulations

66. www.francisclark.co.uk
Investor Ready - Conclusions
• Appropriate funding / understand the funder
• Sufficient information for a risk assessment
• Know the ‘deal breakers’ – due diligence
• Build in sufficient time

67. Raising finance
– where do your
accounts fit in?
Stephanie Henshaw
Partner

68. www.francisclark.co.uk
Obtaining finance:
Have you made the best of your balance sheet?
Current assets
- Stock X
- Debtors X
- Bank X
X
Creditors due within 1 year (X)
Net current liabilities (X)
Current assets
- Stock X
- Debtors X
- Bank X
X
Creditors due within 1
year
(X)
Net current assets X
Deferred income X
Deferred income
- Grants
- Customer
deposits
- Payments in
advance

69. www.francisclark.co.uk
Obtaining finance:
Have you made the best of your balance sheet?
Current assets
- Stock X
- Debtors X
- Bank X
X
Creditors due within 1 year (X)
Net current liabilities (X)
Current assets
- Stock X
- Debtors X
- Bank X
X
Creditors due within 1 year (X)
Net current assets X
Creditors due after one year X
On demand
finance
• loans from
directors
• inter
company debt
Repayment <
12 months from
year end
Beware bullet repayments of loans falling due within 12 months
- consider early renewal/ replacement

70. www.francisclark.co.uk
Obtaining finance:
How is your gearing?
• Fixed coupon preference shares,
fixed redemption shares
• Intercompany or director’s loan
where no intention/ expectation of
repayment
• Presented as debt (liabilities) on
balance sheet
• If redemption due within 12 months,
becomes current liability
• Presented as debt of balance sheet
• Consider capitalising into ordinary or
preference shares (no fixed coupon
or redemption obligation)

71. www.francisclark.co.uk
Obtaining finance:
FRS 102: new rules, new challenges
Changes to net
assets
Additional provisions
Fair values for
financial instruments
Reporting
performance
Fair value
adjustments
Presentation changes
More complex
accounting
Must understand
detail of funding terms

72. www.francisclark.co.uk
Retaining finance:
Understand your covenants
• Information covenants
• Which accounts are being tested?
• When does the bank need them?
• Financial covenants
• What basis of accounting has been assumed?
• What are your options when the basis changes?
• Which measures are tested and how are they calculated?

73. www.francisclark.co.uk
Retaining finance:
FRS 102: new rules, new challenges
Existing
covenants, new
accounting rules
New covenants,
new rules
Which is best:
Renegotiate?
Reconcile?
or…?
Needs discussion
Do you understand
how your accounts
will change?
Impact on covenant
test figures?

74. www.francisclark.co.uk
Break
Session 2 start time
10:10am
#FCFinanceSW