BUSINESS LINK ANSWERS YOUR QUESTIONS
Looking for finance? Part Two
Last month I wrote about raising finance from your bank.
This month I will cover some government schemes aimed at helping you to raise finance and some alternative forms of finance.
If you are seeking bank funding but don't have the required security a government scheme called Enterprise Finance Guarantee (EFG) may be part of the answer.
At the discretion of the bank, through the EFG, security could be available on 75% of the loan at an additional cost of 2% on the loan interest. In effect the government is actually acting as guarantor for part of the loan. The EFG can be used for new loans, existing loans where refinancing is required and conversion of all or part of an overdraft into a longer term loan. Uses of the funding could be working capital or asset purchases. Go to our website for more information.
There are other sources of loan finance, for instance a number of regional loans:
- Small Loans for Business: Aimed at the smaller business and operated by Foundation East for short-term or long-term loans from £500 to £50,000. See Foundation East.
- EEDA's regional growth loan: is for businesses with a turnover of at least £500,000 that has growth potential and a sound growth strategy. This is long-term funding; minimum loans are for £50,000 and maximum £200,000. More details on the EEDA website.
- EEDA Regional Loan - Transition Finance: for businesses with turnover of at least £1,000,000 this is short-term funding of up to 12-months. Minimum loan £100,000 and maximum £150,000. See: the EEDA regional Loan page for details.
Contact Business Link for advice on these and other loan funding sources not listed in this newsletter.
There are other sources of business finance as alternatives to loans and overdrafts. The common ones include:
- Asset financing: This basically means either the hire purchase or leasing of business assets. Independent brokers and the high street banks will offer this type of finance.
- Factoring: is where you would typically hand over the management of the company's debtors to the factor. The factor will pay you up to 90% of each invoice's value and collects the debt from the customer. After collection you will receive the balance less charges. The advantage is that you get paid the majority of the money earlier; there are some disadvantages i.e. it's not cheap and if you have slow paying customers it will cost you more. It can be difficult to break out of this type of funding and of course you are still liable for bad debts.
- Invoice discounting: is where you would be advanced up to 80% of the invoice value but you retain control of the debtors' ledger and therefore customers pay you as normal. You will pay interest and fees monthly. Go to: this page of our website for a fuller explanation of factoring and invoice discounting.
- Equity finance: is where a third party invests in the business often working closely with the business and adding valuable skills and expertise to help the business grow. Venture capitalists would normally be looking for investments of minimum £2m or £3m whereas a business angel will look to invest from a few thousands up to a million. Both will take a share of the business and will want to see a good return of their investment. The process is very complex so you will need specialist advice.
Even over the two newsletters that we have covered this subject, we can hardly scratch the surface of raising business finance, as it is a large and often complex subject. In order to cut through the complexity, for businesses looking for at least £10,000, the East of England Development Agency, supported by St John's Innovation Centre in Cambridge and Business Link, has launched 'Understanding Finance for Business', a free programme which is a series of workshops and one-to-one, tailored, advice and support. The aim is to cut through the jargon and explain all the options open to you in seeking business finance. It starts off at a general level but as the process develops the support you get becomes more specific to your own business needs. See this page for more information and booking details.
That's all for this month.
Peter Mulhall
Business Adviser
tel: 07717 290309
p.mulhall@businesslinkeast.org.uk
Business Link - the place to go for business support
Online: www.businesslink.gov.uk/east
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