K2 guide business finance 2013 version 1


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Funding for Entrepreneurs, StartUp Businesses, and the SME sector is a complex and confusing market. This guide aims to help would-be borrowers the alternatives open to them to achieve their specific funding objectives.

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K2 guide business finance 2013 version 1

  1. 1. K2 Partners Ltd 2013K2’s Business Finance GuideforEntrepreneurs and SMEsprepared byK2 Business Partnersa trading name ofK2 Partners LtdSources of Finance for Start-ups and SMEswith specific emphasis on Business GrowthK2 Business Partners64 Lower Sloane StreetLondon, SW1W 8BPtel 020 7720 8000tel 0844 80 40 420www.partners.com
  2. 2. K2 Partners Ltd 2013Tony GroomK2 Business Partners64 Lower Sloane St, London, SW1W 8BPtel 020 7720 8000tel 0844 80 40 420www.k2-partners.com  K2’s Business Finance Guide forEntrepreneurs and SMEsSources of Finance for Start-ups and SMEswith specific emphasis on Business GrowthCONTENTSSECTION PAGE1.  INTRODUCTION 2 2.  WHAT IS BUSINESS FINANCE 2 3.  AN OVERVIEW OF BUSINESS FINANCE 3 4.  TRADITIONAL SOURCES OF EQUITY FINANCE 4 5.  TRADITIONAL SOURCES OF DEBT FINANCE 6 6.  ALTERNATIVE SOURCES OF EQUITY FINANCE 10 7.  ALTERNATIVE SOURCES OF DEBT FINANCE 12 8.  OTHER & CREATIVE SOURCES OF FINANCE 14 DISCLAIMERK2 Business Partners is a trading name of K2 Partners Ltd. We would like to make it clear that we have noinvolvement or link to any of the organisations listed in this guide. The comments we make about eachsource and its inclusion in this guide is not a recommendation that they may be an appropriate source offinance for your business. Furthermore the reference to a source in this guide does not confer anyinvestment related advice. The information contained in this guide and in the associated Directory of Sourcesis for reference only.
  3. 3. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 21. INTRODUCTIONThis Guide has been prepared in order to assist you identify possible sources of finance for your business.It’s origin is the Entrepreneur’s Guide to External Sources of Finance that Tony Groom, the ManagingDirector of K2 Partners Ltd, updated annually throughout the 90s to help fund the equity gap when it wasdifficult to find investments of between £50k and £1m. The easy access to finance meant that Guide becameredundant. However the recent period of austerity has made it more difficult for SMEs to find cash hence ournew Guide.Raising finance, either as equity or debt will need you to demonstrate that your plan is thoroughly researchedand your business is viable. This means you will need to have a business plan (see our guide to businessplans) that includes your market research to justify the revenue and margins you hope to achieve.Before agreeing to accept funds from any source you should carry out your own due diligence on theprovider. You should know who is actually providing the funds, exactly what the terms and conditions are,whether they are equity or debt. If equity, what are the investors’ rights and their terms? If debt, is it asecured loan or unsecured, how much it will cost in interest payments and are you providing a personalguarantee? You should also know if there are any up-front or introduction fees and the criteria for terminationor early termination costs as these can sometimes be penal.2. WHAT IS BUSINESS FINANCEEvery business needs finance whether to develop an idea, establish the business, grow it or tie up theworking capital necessary when the business is stable. The source of finance is traditionally broken downinto equity and debt. Both are accounted for on the balance sheet but they are fundamentally different as anydebt must be repaid. Despite this the providers of debt finance often use terms that conceal the true natureof the funds they provide which can be confusing hence the need to read the small print.Your business model is key to successful funding and relies on having appropriate finance depending on thestage of the business cycle. Crucially a viable business is needed to justify loans and credit from debtproviders, and a viable plan for rewarding investors is needed to justify equity providers.The rest of our guide seeks to define the categories of finance available and provide named sources. Theassociated Directory of Sources has contact details and a visual grid that makes it easy for you to findfinance for your business.If you are a finance provider and we have the wrong classification or wrong contact details for you, pleaseaccept our apology and simply let us have the correct details. 
  4. 4. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 33. AN OVERVIEW OF BUSINESS FINANCEWe have attempted to summarise the various categories and types of finance that might be available in achart. We have allocated them to the most relevant phase in the business cycle but it is somewhat simplisticso please also consider them as potential sources for other phases. 
  5. 5. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 44. TRADITIONAL SOURCES OF EQUITY FINANCEEquity is the capital of a business and is normally provided by its owners in the form of share capitalalthough different classes of shares can have different rights with venture capital often invested in the form ofpreference shares that confer rights that rank ahead of the founders.Traditional sources of equity financeCATEGORY/ SECTOR NOTES SOURCEPersonal/ founders Savings, pension release, personal assetsales, re-mortgage house. Obtain adviceon tax relief for equity investment portion.Friends & family Those who know you best are bestplaced to assess your commitment toproviding a return on their investment.You are advised to seek help from asolicitor to get investment andshareholder paperwork rightUseful resources:Personal contacts;Angel investors Angel investors tend to invest their ownmoney either in sectors they know or localbusinesses. Often they are led by anArch-Angel who co-ordinates on behalf ofa small group of investors introduced bythe angel network they deal with. Dilutesownership but can provide additionalmanagement resource. Need shareholderagreement. You are advised to seek helpfrom a solicitor to get investment andshareholder paperwork right. Beware theso-called investor looking for a job. Mostangels bring far more value than thecash. Consider a pre-investment trial tocheck you will get on. Take up referenceson those investors who will be appointedas executives.There are a number of prominent angelinvestors including the Dragons fromDragons Den and Online Den and otherslike Charles Dunstone and Jon Moulton.Angel investors can be tax efficient if partof the Government initiative referred to asthe Enterprise Investment Scheme (EIS).Useful resources:Business Angel Network Assn -www.ukbusinessangelsassociation.org.uk;Potential sources:National:Advantage Business Angels; Beer &Partners; Charlotte Street Capital; ClearlySocial Angels; Envestors; FSE Group; GoBeyond Ltd; Invent Network; IW CapitalLtd; Qi3 Accelerator; Seedcamp; SeedrsLtd; Thames Valley Investment Network;WK Capital LLP; Wren Capital; YorkshireAssociation of Business Angels;Regional:Cambridge Capital Group; CentralEngland Business Angels; ConnectLondon; Entrust; Galore Investments Ltd;HALO; London Business Angels; MinervaBusiness Angel Network; NorthwestBusiness Angels; Oxford InvestmentOpportunity Network; Silicon BeachBusiness Angels Ltd; SWAIN; xénos;Seed funding Seed funding for entrepreneurs issometimes also referred to as frugalcapital but normally aimed at developingthe idea & a business plan rather thanfunding marketing activities. Some fundsare supported by the Governmentinitiative referred to as the SeedEnterprise Investment Scheme (SEIS).Potential sources:Amadeus Capital Partners Ltd;Jenson Seed EIS Fund;London Seed Capital;Oxford Technology Management;Shell LiveWIRE;Zero Start Ventures;
  6. 6. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 5Venture capital There are very few venture capital firms(VCs) left for SMEs to raise capital in UK.VCs have either become PEs or aretargeting large investments. Few VCs areable to raise new funds and as a resultare in decline. VCs normally involve afund that is managed by professional fundmanagers who have themselves alsoinvested in the fund. Some focus onspecific sectors but they are all looking forgrowth and will only back provenmanagement with a good plan thatincludes a clear exit to realise value forthe fund. You may need to agree to bringin such a manager as a term ofinvestment. Often term funds with a fixedexit timeframe of 3-7 years. GenerallyVCs only take minority equity stakes asthey don’t want to take control ifmanagement fails to perform. Contactslisted are mainly those that deal withSMEs. The exception with cash to investis the Business Growth Fund that issponsored by the banks and governmentto target investments of £2-10 million witha minimum of £1m.Useful resources:Business Angel Network Assn -www.ukbusinessangelsassociation.org.uk;British Venture Capital Association -www.bvca.co.uk;Potential sources:National:Augmentum Capital;Business Growth Fund;Capital for Enterprise;Catapult Venture Managers Ltd;EC1 Capital Ltd;Eden Ventures;European Founders Fund;Finance Wales;Leopard Rock Capital;Midven;MMC Ventures;Nesta;Octopus Investments;Royal Society Enterprise Fund;Seraphim Capital;Summit Group;Wolf-Pack Investments Ltd;Cass Entrepreneurship Fund;Northstar VenturesSussex Place Ventures Ltd;Private equity Private equity is normally a fund that ismanaged by professional businessmanagers who prefer to take control oftheir investment companies. Most likestrong cash flow with potential to improveit by cost saving, consolidation, growthand or scope for short-term exit orrefinance. Generally PEs are not right forSMEs except as an exit or in a distressedsituation. Few PEs deal with SMEs asthey back entrepreneurs andmanagement teams of mid-marketcompanies with typical growth potentialfor an EV of above £50m.Useful resources:British Venture Capital Association(BVCA) - www.bvca.co.uk Potential sources:Risk Capital Partners;Regional &industrial renewalfundsA number of industrial and regionalfunding initiatives have been set up toencourage employment by investment innew business to provide for renewal ofblighted areas where larger industries hadbeen closed down.This should not be confused with theGovernment’s Regional Growth Fundinitiative that has a minimum bid thresholdof £1m.Potential sources:UK Steel Enterprise; 
  7. 7. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 65. TRADITIONAL SOURCES OF DEBT FINANCEDebts are the loans to a business or when liabilities become due and they can be either secured orunsecured. Secured debts, normally loans, are those where the lender has the right to seize assets in theevent of a defined loan default. They can convert (sell) the owned or seized assets, such as book debts,equipment and property, into cash. Unsecured debts are those where the business owes money and it is notpaid on terms but the creditor must pursue recovery through the courts. In some instances the providers ofloans or credit to a business require third party security such as collateral security (over a personal or thirdparty asset/property) or a personal guarantee provided as a security against the business being unable topay the debt.Traditional sources of debt financeCATEGORY/ SECTOR NOTES SOURCEPersonal/ founders Many SMEs are funded with personalloans, often treated as long-term orshareholder loans. The issue is that theseare a liability on the balance sheet whichas a result can look weak and thereforeleave the business unable to get credit orborrow. Any such loans ought to begenuinely repayable or converted intoshare capital.Friends & family This is similar to personal loans but all toooften regarded as a debt of honour. Thefailure to put in place proper loanagreements often results in a breakdownof the relationship with family and friends.You are advised to seek help from asolicitor to get loan paperwork right.
  8. 8. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 7Bank with collateralsecurity or personalguaranteeFundamentally banks want reassurancethat they will be repaid and providing theyhave adequate security they will chargeinterest at a relatively low rate thatdoesn’t incorporate a premium for anyrisk. Therefore lending to SMEs isnormally against security. Security isnormally a business asset where thefunds provided will be a discount to itsvalue so that in the event of recovery theycan also cover their costs out of therealisation (sale) of the asset. Wherethere are no tangible or realisable assets,the may seek collateral security such asfrom a director putting up a house, or theymay seek a personal guarantee fromsomeone who has sufficient personalassets and is good for the money. Theydon’t like to call upon these third partyclaims but hope that the sanction issufficient to ensure directors are cautiousin the knowledge that they as directorscan be held liable for repayment.While some of banks listed will be wellknown as general banks, others offerloans to local SMEs or specialise inparticular aspects of business.Useful resources:British Bankers Association (BBA) -www.bba.org.ukPotential sources:Aldermore;Allied Irish Bank plc;Arab National Bank;Arbuthnot Latham & Co Ltd;Banco Bilbao Vizcaya Argentaria SA;Bank Leumi (UK) plc;Bank of America NA;Barclays Bank Group;BNP Paribas Fortis;Cambridge & Counties Bank;Close Brothers Ltd;Clydesdale Bank plc;Commerzbank AG;Commonwealth Bank of Australia;Credit Industriel et Commercial;HSBC Bank Group;ING Bank NV;Julian Hodge Bank Ltd;KBC Financial Products UK Ltd;Lloyds Banking Group;Metro Bank Plc;National Westminster Bank plc;Nedbank Ltd;Santander UK Group;Svenska Handelsbanken AB;The Co-operative Bank plc;Ulster Bank Ltd;Union Bank UK plc;Unity Trust Bank plc;
  9. 9. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 8Sales ledger finance Sales ledger finance also known asinvoice finance or book debt finance takestwo main forms - debt factoring andinvoice discounting.In both instances the provider normallyadvances 70 - 85% of the value of eachinvoice on the basis that your invoices arenot advance payments and are notdisputed. Receipts from both are paid intoa dedicated bank account with surplusabove the advance paid to you less theproviders fees. Both are normallyrecoursed which means returned to youfor payment if unpaid within an agreedperiod, normally 3 months, although baddebt insurance is available for a premium.Factoring involves transferring ownershipof invoices to a finance provider whodeals with your customers to chasepayment and administer your salesledger.Invoice discounting (ID) involve borrowingagainst invoices with you dealing withcustomers to collect payment andadminister your sales ledger. ID can beprovided on a confidential or disclosedbasis.Pros: the drawdown amount increases asthe business grows; improves cashflowgiving you access to additional funds;introduces credit control discipline.Cons: it only works when goods orservices are sold on credit to creditworthy organisations; not cheap althoughcompetition has driven down costs forlarger firms; can get tied into long termcontracts; often expensive to terminate atshort notice; propensity to appointadministrators if you fall out with them.You are normally required to finance thewhole sales ledger and you should beaware of the onerous contractualobligations and in particular thetermination of their agreement.Useful resources:Asset Based Finance Association (ABFA)- www.abfa.org.uk;Business Money - www.business-money.com;Potential sources:ABN AMRO Commercial Finance;Aldermore Invoice Finance;Ashley Commercial Finance;Bank of Ireland Commercial Finance,Belfast;Barclays Corporate;Bibby Financial Services;BNP Paribas Commercial Finance Ltd;Calverton Factors;Centric Commercial Finance Ltd;Close Brothers Invoice Finance Ltd;Clydesdale and Yorkshire Bank InvoiceFinance;Factor 21 plc;FGI Finance;GE Capital Bank Ltd;Gener8 Finance;Hitachi Capital Invoice Finance;HSBC Invoice Finance (UK) Ltd;Independent Growth Finance;Innovation Finance;Leumi ABL Ltd;Lloyds TSB Commercial Finance;Positive Cashflow Finance Ltd;Pulse Cashflow Finance;RBS Invoice Finance;Regency Factors Invoice Finance Ltd;Santander Invoice Finance;Skipton Business Finance Ltd;SME Invoice Finance Ltd;Tandem Invoice Finance;Team Factors Ltd;The Interface Financial Group;Ultimate Finance Group plc;
  10. 10. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 9Asset based lending(ABL)ABL covers a wide range of financesolutions but all relate to specific pledgesecurity over tangible assets. The assetsthat may be considered as offeringsuitable security for finance include: plant& machinery; vehicles; IT equipment; rawmaterials, stock, inventory & finishedgoods.The finance agreement may be a hirepurchase where you own the asset or alease where the provider owns the asset.In both cases the provider has security inthe form of a specific pledge over theasset in respect of outstanding paymentsunder the agreement.Useful resources:Most of the banks listed above;Asset Based Finance Association (ABFA)- www.abfa.org.uk;Business Money - www.business-money.com;Potential sources:ABN AMRO Commercial Finance;Aldermore Bank plc;Bank of America;Bank of London and The Middle East;BNP Paribas Commercial Finance Ltd;Burdale Financial Ltd;Centric Commercial Finance Ltd;Close Brothers Leasing;First Trust Bank;GE Capital Bank Ltd;PNC Business Credit;State Securities Plc;Maxxia UK;Property backedloansThe lack of bank lending has spawned anumber of corporate lenders who provideloans secured against property. Theynormally want either a first or secondcharge with plenty of security, normally aloan to value of less that 70%Potential sources:Portman Finance Ltd;Trade finance forproperty &constructionprojectsProperty & construction finance is a sub-set of ABL specialising in asset finance,bridging finance and development financePotential sources:Cavendish Investments;Nucleus Commercial Finance Ltd;United Trust Bank Ltd;Trade for imports,projects & supplychainTrade, import, project and supply chainfinance is a sub-set of ABL specialising inend-to-end finance of goods via reversefactoring, purchase order finance, stockfinance. Importers normally deal withletters of credit, documentary collectionsto payments to suppliers and foreignexchange. International trade finance hasbeen left by most European banks to theABL providers due to the complexity ofcross-border and multi-jurisdiction issuesas well as export factoring, creditinsurance, forfeiting, goods in transit andletters of credit.Potential sources:Conance Ltd;Islamic finance Shariaa compliance is a specialist areaand generally dominated by those Bankswith roots in Islamic countries.Potential sources:Bank of London and the Middle East plc;United National Bank Ltd; 
  11. 11. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 106. ALTERNATIVE SOURCES OF EQUITY FINANCEDespite a withdrawal by traditional venture capital from the SME market, it has been replaced by internetplatforms that can be used to find investors or can consolidate a number of investors to provide crowd-funding.Alternative sources of equity financeCATEGORY/ SECTOR NOTES SOURCECurrent employers It has become increasingly common foremployers to assist entrepreneurial staffby recognising they will leave butproviding a level of support. The termIntrepreneurs is often used and theemployer may retain staff for longer orjustify a stake in the new enterprise.Potential sources:Employer;R&D partners Entrepreneurs get others to help themand cut deals. This is a key skill and cansave cash when expertise and intellectualproperty is needed. Just ask and make itworth others helping you.Potential sources:Firms that can provide support for R&D;Innovation &invention investorsThere are a number of very early stageinvestment programmes focussed oninnovation & invention to provide finance& support for outstanding ideas for newproducts or services.Potential sources:National Endowment for Science,Technology and the Arts (NESTA);Social, charitable &ethical angels &investorsA number of organisations co-ordinateinvestment in businesses with a social,charitable or ethical dimension. Othersare allocated to deprived areas.Potential sources:The Community Development VentureFund;Crowd / peer-to-peerinvestorsCrowd-funding is an alternative way ofsourcing investment from businessangels. It is an online market with nomiddlemen and can be very quick withindividuals investing smaller amounts ofmoney - usually between £100 and£10,000 - into a business. The individualinvestments are pooled collectively tohelp a business reach its funding target.The investors consider an online proposalbut the platform provider normally vetsthe proposal and in particular thecreditworthiness of the people behind thebusiness. Beware of some pitfalls ofcrowd-funding it can leave you with lots ofshareholders that can scare off asubsequent sale or future investors likeventure capital or angel funders. There isno secondary market for equitypurchased via crowd-funding.Useful resources:UK Crowdfunding Association -www.ukcfa.org.ukPotential sources:Bank to the Future;Company Partners;Crowdbnk;Crowdcube Ltd;FTG Finance Services Ltd t/asFundTheGap;Investing Zone;Kickstarter;Peoplefundit;Please Find Us;Seedrs;SellaBand;Uinvest;We Fund Ltd;Client / customerpartnersEntrepreneurs cut deals and often clientslike the idea of owning equity in asupplier. It is often just a matter of yourpersonality.Potential sources:Clients & potential clients;
  12. 12. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 11Government growthincentive schemesGovernment initiatives for SMEs comeand go but with the intention ofencouraging growth and employment.The latest one launched in 2012 providesa funded mentoring service.Potential sources:GrowthAccelerator;Supplier partners Entrepreneurs cut deals and oftensuppliers like the idea of owning equity ina customer. It is often just a matter ofyour personality.Potential sources:Suppliers; 
  13. 13. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 127. ALTERNATIVE SOURCES OF DEBT FINANCEThere are many different sources of finance but as has been frequently reported the most obvious source,bank lending, has become increasingly difficult to obtain, particularly by small and medium sized companies(SMEs). This is hardly surprising given that banks expect to be repaid and should only be lending when theycan be certain of being repaid. After all, it’s our money they are lending.Despite a withdrawal by banks from lending to Entrepreneurs and SMEs there are plenty of other ways tofinance a business. Many have taken advantage of the internet with the introduction of online administrationof loans and peer-to-peer lending.Alternative sources of debt financeCATEGORY/ SECTOR NOTES SOURCEClient/ suppliersupport & loansEntrepreneurs cut deals and oftenpotential clients and suppliers like theidea of providing support that can beoffice premises, staff, accounting, legal orother services, use of equipment or evensoft loans. It is often just a matter of yourpersonality.Potential sources:Potential clients & potential suppliers;Crowd / peer-to-peerloansThis is similar to crowd-funding in that it isgenerally carried out online but it offerssmall savers an opportunity to lend toborrowers at a higher rate of return thanthrough the more traditional savingsroutes. It is increasingly being used bysmall businesses and start ups.P2Plending is not covered by the FinancialServices Compensation Scheme, sothere is no guarantee lenders will get theirmoney back. Some peer to peer lendersdistribute savers’ loans among severalborrowers to minimise the risk to thelenders. Borrowers should expect toundergo a credit check.Useful resources:P2P Finance Association -www.p2pfinanceassociation.org.uk;Potential sources:Abundance;Buzzbnk;Funding Circle;Funding Knight;Instant Working Capital (IWOCA);Rebuildingsociety.com LimitedRetail Money Market Ltd t/as RateSetter;Sponsume;ThinCats;Zopa;Online invoice /trade financeauctionsSome the crowd-lending platformsoperate as auctions to fund invoices ortrade contracts. These lenders aresecured and are paid when the invoice orcontract is paid. A big benefit is that thesetend to be flexible where you can borrowagainst a single invoice without theonerous contractual obligations and needto hand over the whole sales ledger thatare demanded by most traditional invoicefinance firms.Useful resources:Potential sources:MarketInvoice;Platform Black;
  14. 14. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 13Government start-up loans schemeThere are a number of governmentinitiatives to support start-ups. Most areprovided and administered by banks butsome can be accessed direct such asinclude the Start-Up Loans initiativepromoted by James Caan from Dragon’sDen. It aims to boost enterprise amongst18-30 year olds by providing loans up to£25k alongside mentoring although theupper age limit is under review and mayin due course be increqased.Potential sources:Start-Up Loans Company;Corporate lenders There are a number of corporate lenderslooking to take advantage of the lack ofbank lending.Potential sources:Business Financial Services (UK) Ltd t/asBoost Capital;Wonga.com Ltd t/as Wonga Business;Social, charitable &ethical lendersA number of lenders specialise insupporting those businesses with asocial, charitable or ethical dimension.Others lend to organisations in deprivedareas.Potential sources:Adventure Capital Fund;Big Issue Invest;Charity Bank;Futurebuilders England;Triodos Bank;Unity Trust Bank;Co-operative & Community Finance;Community Development Finance; 
  15. 15. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 148. OTHER & CREATIVE SOURCES OF FINANCEThere are plenty of ways to fund a business without equity or loans. While not recommended and certainlynot to be undertaken without a plan, one extreme is ‘boot strapping the business’ whereby purchases aremade on credit without orders in place, as a form of ‘hope’ that the income will come and be sufficient to paythe debts. Indeed the philosophy of ‘boot strapping’ can introduce sound financial discipline to a newenterprise by challenging the need for expenditure and being conscious of cash. Other entrepreneurs haveused personal credit cards.We have listed below some of the more conservative ideas for supporting a business without finance.Other & creative sources of financeCATEGORY/ SECTOR NOTES SOURCEUnemploymentbenefit, jobSimply sign on while you write yourbusiness plan although you should beaware that a condition of receivingunemployment benefits is that you arerequired to demonstrate that you areseeking employment. There are howeverstart-up grants and loans that may bemore relevant. It is also common forentrepreneurs to start a new businesswhile still employed but you should firstcheck your contract of employment andmay need to obtain consent from youremployer.Incubators Dilutes ownership but can provideadditional management resource.Term usually fixed with exit pre-determined and normally 3-7 years.Each fund tends to specialise andtherefore research will save time.Funds tend to look for a distinctivecompetitive advantage or at least stronggrowth potential. Management usuallyrequires proven track record or to acceptFunds representative.British Venture Capital Association 071-233 5212Corporatesponsorship/grants/ discountsWith a bit of imagination, entrepreneurswill find ways of getting sponsorship anddiscounts. The founder of Yo Sushirecognised those Japanese firms like JALand BoJ that gave him a discount byreferring to them on the cover of hisbusiness plan that successfully raisedfinance.
  16. 16. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 15Governmentsupport/ start-upgrantsA large number of schemes are availableto help your business, including: grants,publicly-backed finance and loans,business support eg mentoring &consultancy.Useful resources:Government Business and SupportFinder - www.gov.uk/business-finance-support-finder;Government Guide on SME Access toFinance Scheme -www.gov.uk/government/uploads/system/uploads/attachment_data/file/192618/bis-13-p176b-sme-access-to-finance-measures.pdf;GovernmentinnovationinitiativesKnowledge Transfer Partnerships (KTP)support and fund projects for UK SMEs(and large businesses) wanting toimprove their competitiveness,productivity and performance byaccessing the knowledge and expertiseavailable within UK Universities andColleges. KTP works with creativeorganisations, including design, fashion,music and video games businesses, alsoengineering and manufacturing andInformation and CommunicationTechnologies (ICT) businesses.Useful resources:Technology Strategy Board -www.innovateuk.org;Knowledge Transfer Partnerships -www.ktponline.org.uk;Innovation Vouchers –vouchers.innovateuk.org;R&D tax credits This is a particularly valuable creditavailable as a refund on R&Dexpenditure. It is accessed via yourcorporation tax return – speak to youraccountant or a firm that specialises inrecovering them.Useful resources:Tax accountants;GrantTree Ltd - www.granttree.co.uk;Sweat equity This is aimed at getting help from keypeople when you can afford it. Essentiallyequity in offered in lieu of payment or youcan offer deferred consideration ormilestone payments to key people,whether employees or sub-contractors.Useful resources:Employees & sub-contractors;Government taxbased investmentinitiativesThe Enterprise Investment Scheme (EIS)and the more recent Seed EnterpriseInvestment Scheme (SEIS) wereintroduced to encourage private andventure capital investment from non-connected, third-party investors. Theyoffer tax based incentives includingincome tax relief on investments in sharecapital.Useful resources:www.hmrc.gov.uk/eis;www.seiswindow.org.uk;Customers/ clients Customers & contractual terms for earlypayment. Entrepreneurs cut deals andoften clients like the idea of owning equityin a supplier. It is often just a matter ofyour personality.Useful resources:Customers & contractual terms;
  17. 17. Sources of FinanceK2 Partners Ltd 2013 2013 Editionwww.k2-partners.com 16Supplier credit Suppliers & contractual terms.Entrepreneurs cut deals and oftensuppliers like the idea of owning equity ina customer. It is often just a matter ofyour personality. Beware those suppliersthat incorporate personal guarantees intheir credit agreements and in theirdelivery/ collection notes. This iscommonly used by suppliers to thebuilding industry, in particular the largebuilding materials suppliers and plant hirecompanies.Useful resources:Suppliers;Retained profit Business model determines how muchworking capital is left in the business toweather problems in the future or fundgrowth.Matched terms -creditor/ debtorBusiness model & contractual terms suchas 30 days credit with customers and 30days credit with suppliers, or borrowagainst book debts and pay suppliers ondelivery.Useful resources:Customers & suppliers & contractual terms; Happy hunting and do let us know how you get on so we can keep details and comments about the sourcescurrent.Email: finance@k2-partners.com