Sources of Finance
Finance for Small Businesses – Current Climate
The
UK’s financial markets are amongst the most dynamic and flexible in the world, meeting the needs of most small businesses. However, in the current economic climate some small businesses – particularly start-ups and those lacking a track record or without collateral – can struggle to access finance.
Real Help With Finance
Following the Government’s announcement in the November 2008 pre budget report, a package of support to address the cash flow, credit and capital needs of small businesses has been launched under the Real Help for Business campaign:
Enterprise Finance Guarantee
Government guaranteed lending through the new Enterprise Finance Guarantee is open to businesses with an annual turnover of up to £25million who are currently not easily able to access the finance they need. This will enable businesses to secure loans of between £1,000 and £1 million. See below for more details.
Working Capital Guarantee Scheme
Government is also making available to banks guarantees of up to £10bn, which will support bank lending of up to £20bn. The purpose of this facility is to secure lending and to release capital which banks can redeploy in order to increase all types of lending above their current plans to businesses with a turnover of less than £500m.
Capital For Enterprise Fund
The Government has launched a £75 million Capital for Enterprise Fund with £50 million of Government funding which will allow companies to fund business development by selling debt in exchange for an equity stake in their business. The fund will provide equity and quasi-equity of £250,000 and £2million for companies of up to £50m turnover who have viable business models and growth potential in need of long term capital. Further information is available by phoning 0845 4599780
Enterprise Capital Funds
Since 2006, the government has established a multi-million pound equity finance scheme, Enterprise Capital Funds (ECFs), to enable funding, of up to £2 million, for businesses that require investment that falls within the ‘equity gap’ – more than business angels can supply and less than venture capitalists would consider.
Community Investment Tex Relief
For individuals and corporate bodies investing in accredited Community Development Finance Institutions (CDFIs).
Early Growth Funds
Object is to increase availability of small amounts of risk capital: on average £50,000 for specific industries.
Late Payment
Legislation does not prevent business from setting own terms with customers, including level of interest charged.
Regional Venture Capital Funds
England-wide programme provides amounts to £500,000 for SMEs that show growth potential.
Enterprise Finance Guarantee
In the current climate, businesses are finding it increasingly hard to access the finance they need, particularly working capital. This is not because the business has suddenly transformed from a success to a failure; but because the current economic conditions have made a significant impact on the availability of capital as the banks change their approach to risk and tighten lending conditions. Under the Enterprise Finance Guarantee, the Government will guarantee lending to viable businesses to ensure that they can get the working capital and investment that they need.
This £1.3bn scheme will support bank lending, of 3 months to 10 year maturity, to
UK businesses with a turnover of up to £25 million who are currently not easily able to access the finance they need. It will enable them to secure loans of between £1,000 and £1 million through the Government guarantee and is available up to 31 March 2010.
The guarantee, available now through 26 lenders, can be used:
- to support new loans to refinance existing loans where the loan is at risk due to deteriorating quality of security,
- to convert an existing overdraft into a loan to release capacity to meet working capital requirements.
Grants
The best place for small businesses to find out what grants are available for a specific business is through the Business Link website’s finance and grants pages.
Many grants will specifically be for new projects; such as Research & Development or exploring Innovative ideas.
Quotes from a Business Link director: “If you are the sort of business that has got a new idea or product or process, you are in a better position to get grant funding than if you are in a business looking to make incremental changes”.
“Essentially, what we are trying to do is move away from specific grant-giving towards providing support in other non-financial ways”.
This means that grants are likely to be less readily available, need to meet specific outputs or targets such as provide employment, or to help in areas of disadvantage or people therefrom.
There will normally need to be evidence of match-funding with existing funds, with the grant enabling a project to go ahead when it would have otherwise been possible.
Economic Recover Loan Fund
Even in good times managing a business is never easy.
It’s even more difficult for businesses when times get tough.
The London Development Agency (LDA) recognises that London’s
business community needs additional support during the current economic
downturn, and has developed a special programme for SMEs, the Economic Recovery Loan Fund, to help businesses survive the recession and prepare for the future.
Launched on Friday 12 June 2009, the scheme will provide established businesses with loan funds of £10,000 to £50,000.
The scheme, which is part of Action 4 of the Mayor of London’s
Economic Recovery Action Plan, is available for any business that:
- has a viable business plan and is able to show that it can afford to repay the loan
- has less than 250 employees or annual sales of less than £45
million (Businesses dealing in land commodities or securities are
excluded, as are most businesses providing financial services) - is a sole trader, partnership, limited company, social enterprise or charity
- is based in London
- has been trading for at least 12 months
- needs a loan to help protect existing jobs or create new ones
Small business benefit from LDA support
Businesses across London are benefitting from loan funds, financial advice and support provided by the LDA.
Faisal Haque of Wrap It Up said:
“We are a small sandwich business looking to grow. We are delighted
to have the chance to borrow the money we need at rates that are
guaranteed. This will allow us to set up a new branch and increase our
sales.”
Rob Gribbin of hi-tech ticketing agency Clubtickets said:
“Without this loan from the LDA’s fund, we would find it hard to get
the money we need to expand. We will now be able to plan our growth
and build our business.”
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