Francis Clark – Funding Update Workshop - November 2015

Funding Update
November 2015
Presented by Richard Wadman

www.francisclark.co.uk
Administration
Admin
Timetable
Coverage – per invite
Questions at the end and over
breakfast
Interaction – Compulsory?
Slides – See pack

Source: Bank of England
Banks – % change in lending
3
Lending (net) to UK businesses

Banks – absolute £ lending
https://www.bba.org.uk/news/statistics/sme-statistics/bank-support-for-smes-2nd-quarter-2015/#.Vi4MnVJi_IV
8

Appetite and Leverage: national
• Cash holdings continue to grow, reducing SME needs for
bank finance. Deposit levels are growing by 9% annually
and significantly exceed SME borrowing, by around £59
billion.
• For those SMEs applying for bank finance, approval rates
are around 80% for smaller businesses and 90%
for medium-sized. The second quarter saw 31,500 loans
approved for SMEs.
• Medium businesses in particular are seeing an improving
trend in new loans
https://www.bba.org.uk/news/statistics/sme-statistics/bank-support-for-smes-2nd-quarter-2015/#.VhJLG1Jwapp
8

Appetite and Leverage: local
• Increasing flexibility in face of a competitive market
• Relationship focused
• Re-organised – greater emphasis on the SME / MME
market (Good news for South West)
• Significant variation in approach/process (credit v local)
• Depends on the nature and structure of a transaction –
expansion/acquisition/MBO
• 2.5 - 3X EBITDA upper end for SMEs
• Competition will drive up
8

Rates and Terms
Source: Bank of England
Should look to achieve lower margins than above + care margin over
what?

Rates and Terms
• Likely to go up – but not by much for a while
• Rates – consensus from economists of base rate being
c2% by 2019
• Fixed rates / interest rate protection – back on the
agenda though will require mutual agreement and
borrower sign
11

Rates and Terms
• Lending documentation continuing to grow
• Bank’s relaxing terms / covenants on their
documentation?
• SME negotiating position generally weak – but can
to look to very “standard terms” (side letter?)
• Personal guarantees - easy to give, hard to get
back (build in their release to offer letters?)
• FRS102…
• Make sure your projections satisfy the covenants
with headroom (say 20% on operational covenants)
• For strong businesses / proposals – ability to
negotiate terms
11

“Challenge to the Status Quo” - UK
Challenger Banks
 Phrase coined by Vince Cable
 Big 4 (HSBC, LBG, RBS, Barclays) plus Santander and Handlesbanken
 Metro bank – first new banking licence for more than 100 years
 Other challengers – Virgin, Paragon, Aldermore*, Shawbrook*, OneSavings*
 Interestingly (*) are Private Equity owned. A number of 2016 flotations planned
 Can they “challenge” the Big 4. Time will tell
 Flexible
 Speed of response
 Impact of a downturn?
 Critical mass? More consolidation?!!

Funding Landscape (Non-bank)
• https://www.gov.uk/business-finance-support-finder
• 557 schemes (down from 630 schemes)
• Main sources of grants, include
• EU/ESIF funds (ERDF, ESF & EAFRD)
• Regional Growth Fund
• City Deals
• Growth Fund
• Innovate UK (Technology Strategy Board)
• Big Lottery – Coastal Community Fund (post 2017?)
• Health Lottery – Community based
(https://www.healthlottery.co.uk/about-us)?

External Grant Funds – The Sources
Regional Growth Fund
• Monies left behind on dissolution of RDA’s
• £2.4bn
• 2011 to 2015
• Applications > £1m
• Competitive process
• Round 7?
• eRGF (International Mobility & Economic Shock and other funds
exhausted)?
• RGF funded schemes for SMEs
• Incl; PWGF1, PWGF 2, GGF+, ND+ UBI, SWGF and Assisted
Asset Purchase
• Not sector specific, criteria different for individual schemes

External Grant Funds – The Sources
EU/ESIF
• Convergence: Cornwall 2007 to 2013
• EU (announced June 2013)
Cornwall: €592.9 million (£507 million) between 2014-2020
Devon and Somerset:118 million euros (£100 million).
• Eligibility
Location, Displacement, Quality Jobs, Sector exclusions

“State aid”
Key phrases
• “De minimis” (< 200,000 euros over 3 fiscal
years)
• Block exemption
• Assisted Area
• Large Co, SME
Care
• Other grants
• R&D Tax Credits
• EIS/ SEIS
• Enterprise Finance Guarantee Scheme

Grants, Debt and Equity - Funds
RGF (& eRGF): Individual applications (> £1m)
• Quality projects
• Generate private sector investment and
create sustainable jobs.
• The level of grant is subject to State Aid
rules
• Robust need for grant argument.
• Maximum grant intervention rate c 30%:
• Some Francis Clark successes in previous
rounds and some being assessed now..

Grants, Debt and Equity – The Funds
South West Growth Fund (‘SWGF’)
• £8.7m RGF backed grant scheme
• Launched Sept 2015
• Wider South West, incl Cornwall
• Grants of £15k to £1m for capital projects
• Intervention rates vary on location and size of business (e.g.,
Cornwall 45% to 25%)
• Other support: MAS and SWW
• EOI (fee); full application (fee) to panel assessment
• Eligibility (target sectors v displacement)
• Cost/ job (£8.5k)
• Projects to complete by 31 March 2017
http://www.francisclark.co.uk/news-views/blog/south-west-growth-fund-swgf-more-details/

North Devon Plus + Unlocking Business
Investment (‘ND+ UBI’)
• £4m RGF backed grant scheme (over £1.7m awarded to date)
• HoSW LEP area only
• Grants of £25k to £500k for capital projects
• Intervention rates vary depending on location and size of business
(10% to 30% under GBER)
• EOI (fee); full application to panel assessment
• Eligibility (target sectors v displacement)
• Cost/ job (£10k)
• Private sector investment
• Projects to complete by 31 March 2017
• Jobs to be created by 31 March 2019
http://www.francisclark.co.uk/news-views/blog/unlocking-business-investment-an-update/

Cornwall Marine Capital Fund – Closed?
• Grant funding £50k - £500k for Cornish/ SW based businesses operating in
the marine sector;
• Intervention rate 10%-40% depending on value for money, size of business
and direct jobs created (large businesses can receive no more than 30%);
• Eligible costs are capital investment into equipment (new and modernisation),
premises (building new, modernisation, fit out and bringing old businesses
back into use) and marine renewable technology development;
• Allocation of funds to projects within the programme will only be made once
proof of match funding has been seen.
• Start with an online EOI
• http://www.cornwallmarine.net/52/about-cornwall-marine-network-6/rgf-
201/major-new-funding-opportunity-for-cmn-members-376.html

• Assisted Asset Purchase Scheme
Grant contribution to deposit on Asset Purchase
Parameters depend on bank e.g., Lloyds
• Grants < £500k
• 20% for Small Co and 10% for Medium Co
• 1 job created or safeguarded for £15k grant
• No minimum deposit from own funds (?)
• Balance of funds (min £100k) from Lloyds TSB
Lloyds TSB closed. HSBC AAP is closed. Nat West/ RBS is
closed. Close Bros and Ignition Credit are open
RGF Funded – limited availability

Creative Businesses
Creative England Funding:
• Creative Cities Growth Programme -
http://www.creativeengland.co.uk/business/creative-cities-growth-
programme
• Business Loans (interest free) -
http://www.creativeengland.co.uk/business/business-loans
• Equity Investment Programme -
http://www.creativeengland.co.uk/business/equity-investment-
programme
• All Business related support -
http://www.creativeengland.co.uk/business
Arts Council:
• Funding information - http://www.artscouncil.org.uk/funding/

Previously known as “Grant for R&D”
Science, Engineering and Technology: New Products and Services
Grant support for SMEs:
• Proof of market (9 months, £25k, 60%)
• Proof on concept (18 months, £100k, 60%)
• Development of prototype (2 years, £250k, 35% / 45%)
Competitive / Batch Applications
Smart v R&D Tax Credits - cannot have both for same project
SMART

Innovate UK
Suite of funds:
• https://interact.innovateuk.org/
• Some more feasibility study based
• Some more generally relevant to SMEs, e.g. Innovation Vouchers

Innovation 4 Growth
• £4m RGF backed grant scheme
• Reopened September 2015
• South West businesses with R&D plans
• “Experimental development”
• Grants of £25k to c£150k for R&D projects
• Intervention rate of 35%
• Start with 50 word summary of market and technology that project
covers
http://www.francisclark.co.uk/news-views/blog/innovation-4-growth-is-back-and-aimed-experimental-
development-projects/
Applications closed 14
October 2015. May
reopen in 2016

ESIF and EARDF Growth Programme(s)
• EU funding: EAFRD, ERDF and ESF
• “Calls” – National
• Cornwall - http://www.francisclark.co.uk/news-views/blog/future-visibility-on-cornwall-and-isles-
of-scilly-esif-calls/
• Heart of SW (EAFRD) - http://www.francisclark.co.uk/news-views/blog/heart-of-the-sw-eafrd-
allocation-detailed-acronym-heavy-but-useful-guidance-on-pages-5-and-6/
• Open calls - include one for F&D producers in Cornwall and Isles
of Scilly and one in each of Heart of SW LEP and Dorset LEP for
“tourism” - http://www.francisclark.co.uk/news-views/blog/calls-for-tourism-projects-one-in-heart-of-south-west-lep-area-
and-one-for-dorset-lep-area/
• To view current ‘calls’ visit https://www.gov.uk/european-
structural-investment-funds then tick Location: South West,
• Timings…!

LEADER, funding delivered through LAGs (Local Action Groups)
• General
• Cover “rural areas”
• Wider scope than Agri-food sectors
• Cornwall
• £3.65m/ £7.3m allocated to: Improvements in farm and forestry
productivity; SME competitiveness and Farm diversification
• Grants of between £2.5k and £35k to fund up to 50% of project costs.
• Now Open!
• Devon
• https://new.devon.gov.uk/fundingnews/fund/eu-leader-programme-local-action-groups/

Grants
Factors contributing to a successful application…
1. Project
2. Eligibility (Priority Sectors v Ineligible. “Displacement”)
3. Robust Business Case
4. Business Plan (and Financial Projections)
5. Dialogue with fund holders
6. Understanding their requirements: strategic and operational
7. Need for grant
8. Patience/ Completeness
9. Understanding timelines
10. Match funding – seldom 100% intervention and seldom pay in
advance of defrayal

Grants, Debt and Equity – Support
• £25m+
• 50+ companies
• 15 different sectors

Grants, Debt and Equity – The Funds?
GROWTH FUNDS
• CIOS LEP anticipating a further round and will bid
• Looking for a project pipeline
• Minimum grant £100k
• Projects to support the objectives of existing CIOS Strategic
Economic Plan
• Capital projects ready to start in 2016/17
• Can include GP surgeries
• http://www.francisclark.co.uk/news-views/blog/have-you-got-an-economic-growth-project-of-tomorrow-for-
cornwall-isles-of-scilly/

• South West Loans Fund
Up to £50k
Viable growth businesses with funding gap
Maximum 5 year term
PGs required
Commercial rates (6% to 10%)
Across the South West
SWIG administered, includes

• £1.2 million loan fund
• Funded by RGF
• Aimed at South West micro, small and medium sized businesses, with growth
potential, which are unable to secure all the funding they need (i.e. from the
bank);
• Available to most sectors, including those ineligible for European Funding;
• Loans £10,000 - £100,000 (average £30,000)
• Maximum term 3 years
• 10% fixed annual interest rate
• Arrangement fee of 2% of loan amount payable on loan draw down
• Businesses must demonstrate investment will create or safeguard jobs
• Available to start up and existing businesses
• application process starts by completing an eligibility form
• http://www.francisclark.co.uk/news-views/blog/south-west-investment-group-
swig-add-new-loan-to-their-arsenal/

• Start Up Loans
Trading for < 12 months (can be extended to 24 months)
Loans between £500 and £9,900 @ low interest rate (6%)
Average loan of £6k
Fully funded business advice putting together business plan
Fully funded support from a business mentor for a year
http://swigstartups.co.uk/what-we-do/

The Banks…including
• Santander’s Breakthrough fund
£200m for SMEs (turnover < £25m)
Mezzanine Loan
Interest only: 5% over LIBOR paid quarterly, further 5% rolling
up
No set limits on sums borrowed but c £500k to £3m
Not for start-ups
Track record of profitable and cash generative growth (20% pa)

Others
• Energy Efficiency Financing Scheme
Siemens Financial Services and Carbon Trust
Business trading > 36 months
Investment in energy efficient equipment (and renewable energy
generation?)
Loan e.g., Interest rate c 9% for a 7 year term loan repayable in monthly
instalments.
• ReEnergise SmartEnergy Finance
Investment in renewable energy and energy efficient projects
£5m fund
SMEs – loans of £25k to £250k on commercial terms
Target sectors incl manufacturing, leisure and hospitality

Grants, Debt and Equity
Background
• “UK needs Long Term Finance”
• Small Cap equity finance – Regional stock exchanges
(ie Germany)
• Long term equity – Business Growth Fund?
• Corbynomics - Investment Bank targeted at SME long
term funding
Believe it or not the UK used to have one – eventually became 3i

Routes to Equity
• “Friends, Families and Fools”
Include related businesses?
• Networks e.g., SWAIN, OXIN
• Conduits e.g., UEC Enterprises, GAIN?
• Virtual Networks e.g., Crowdcube
• Venture capitalists and Private Equity e.g., Piper
Private Equity, Altitude Partners LLP, Longwall
Venture Partners, LDC or Dunedin

Routes to equity – government led interventions
• Business Growth Fund
Commercial Fund
Bank financed
Investments of b/w £2m and £10m
Minority stakes
Relaxed on sectors – but no property or financial services
T/over > £5m (but will speak to clients earlier)

Routes to equity – government led interventions
• Angel CoFund (RGF)
Initial Equity Investments
£100k to £1m
Alongside syndicates of Business Angels
Upper limit of 49% of any investment round
No direct applications by SME

The funds…
Crowdsourcing
• Equity e.g.,
• Crowdcube - http://www.crowdcube.com/
• BrewDog - http://www.brewdog.com/equityforpunks
• Debt e.g.,
• Funding Circle https://www.fundingcircle.com/ and http://www.francisclark.co.uk/news-
views/blog/francis-clark-brokers-over-1m-in-funding-for-south-west-businesses/
• Folk 2 Folk http://www.folk-folk.com/
• Rewards e.g.,
• Crowdfunder http://www.crowdfunder.co.uk/

Business Growth Service, includes
• Growth Accelerator
Coaching, Access to Finance or Growth Through Innovation
(subsidised)
Leadership and Management (subsidised £2k per manager)
• Manufacturing Advisory Service (“MAS”)
• UK Trade and Investment (“UKTI”)

British Business Bank
• Not a provider of funds directly to SMEs, but a
provider of funds to 80 finance partners, including
SWIG and Funding Circle
• British Business Bank programmes include:
• Angel Co Fund
• Enterprise Capital Funds
• Help to Grow Growth Loans
• Enterprise Finance Guarantee Scheme
• Start Up Loans

Growth Hub
• Cornwall & Isles of Scilly LEP - interim
• http://www.ciosgrowthhub.com/
• Heart of SW LEP – EOI closes 30 October 2015
• Dorset LEP - http://www.dorsetgrowthhub.co.uk/
• West of England LEP – launches December 2015

Keeping up to date… Francis Clark
• Finance in Cornwall and Finance in South West
factsheet
• 2 monthly e-news letters
• Blog
• Richard or Dave (grants); plus other Corporate
Finance colleagues (debt and equity)
• Finance in South West event – 23 February 2016

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Francis Clark – Funding Update Workshop - November 2015

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