How can your business access finance?

Recent Department of Business, Innovation and Skills (BIS) research showed the flow of new bank lending to SMEs which includes family and owner managed businesses fell by 23% between 2009 and 2012. One of the issues was the lack of awareness of alternative sources of finance amongst businesses. 

Our corporate finance team who work with clients to raise finance give their top 10 routes to accessing finance:

• Bank loans and overdrafts– don’t dismiss the traditional route and assume you will be rejected, the latest Finance Monitor report confirm the perception gap – only 25% of business approaching banks expect their application to be successful yet 50% are. Ask about the Funding for Lending Scheme. If security is an issue the Enterprise Finance Guarantee (EFG) scheme, a government backed initiative, is there to assist businesses secure finance. On the ground we are experiencing a growing appetite for lending from the high street banks
• Asset based lending– raise funds via your debtor book. Finance houses lend 70 - 80% of your ledger value. The facility can grow as your business grows. Linked with invoice finance, finance houses will also lend against other business assets that are unencumbered such as property, plant and stock as part of an overall package. There are circa 45 different asset based lenders in the UK
• HP and leasing – a good route for financing vehicles, plant and equipment – does not just have to be new assets – refinance existing assets
• Regional growth funds – the fifth stage of this £3.2 billion fund has just been launched. For projects below £2m funding level, businesses can access this usually through the Local Enterprise Partnerships and in Scotland – Scottish Enterprise. A mix of loan and grant funding
• Regional Venture Funds (JEREMIE) - there is a mix of loan and equity funding available across Yorkshire, the North East, the North West and Scotland. Different funds exist for different types of business at various stages of their business life cycle
• Grants – European and regional grants still available – geography specific, linked to creating or sustaining jobs and needs to be the final element of funding in any project
• Pension funds – Pension pots can be used for business funding using a SIPP or SSAS and this can be done in two ways through a commercial loan or an intellectual property purchase
• Family and friends – often prepared to help but keep everything on a professional footing. Take advice and record any agreement in a proper legal document to avoid any misunderstanding later on
• Business Angels (aka Dragons Den) – they will want an equity stake in your business but they offer more than just cash
• Venture capitalists - they only operate at funding levels in excess of circa £5m and will take an equity stake. You will need a proven track record, strong growth prospects and a clear exit route (often within five years)

Our key message is explore all options and take advice.

Armstrong Watson subscribe to a UK wide funding database with real time information and a search facility for the latest funding deals available.

Alison Watts, Partner