1 Sources of Finance Special thanks to Geoff Leese

2 Sources of Finance n At start-up, and whenever the firm may wish to grow, investment may be needed n Outside finance has a cost – either financial or independence or both n Finance may be required long term, or short term n You may not be able to borrow all from one lender, and may have to put up some of your business or your own finance as guarantee

3 Long term finance Source n Equity ä Personal investment ä Other people’s money n Medium/long term bank loans n Leasing n Hire purchase Use n Fixed assets ä Buildings ä Equipment ä Plant and machinery ä Vehicle fleet ä Land

4 Short term finance n Source ä Factoring ä Short term bank loans ä Overdraft n Use ä Working capital ä Debtors ä Stocks

5 Government grants and loans n There are many schemes for business and industry, and these change from time to time, both in availability and conditions n Conditions often apply to geographical areas n May apply to type of business, or size or age n What existed before may have disappeared, to be replaced by a new scheme, which may be better for you, or to which you may now have access n Or types of employee, such as help for disabled employees

6 Start up grants n Conditions ä Location ä Size ä Sector of industry n Easy to find out about n Rigid conditions across the board n Change over time (not just with new administration)

7 Government loan guarantee n Only available under very specific conditions (Small Firms Loan Guarantee) ä For small business ä Not enough security for conventional route ä Business has viable proposal (such as export entry) ä Up to ten years ä 75% ä Borrowing arranged by you with lender

8 Other grants and loans n Conditions will certainly apply, and in some cases may be very specific n Usually relatively small amounts, and not always easy to find out about n Often available during short periods (until the funding runs out) n May apply to you as owner (Prince’s Trust age limits) n Or location n Or industry n Or types of employee, such as help for disabled employees from trusts or charities

9 Venture Capital Funding n Government supported, but government does not directly invest n Regional Venture capital funds in England, commercial focus and return n £500,000 maximum for smaller businesses with growth potential n Bridges Community Development Venture capital Fund, focused on most disadvantaged quarter of England n Similar funds in other parts of UK

10 Business Angels n National network of individuals, often ‘retired’ entrepreneurs, who are always looking for new investment opportunities to increase their own wealth n Often very large amounts can be available n Individuals may insist on some forms of control over how you do business, and may not have expertise in your industry

11 Banks Local, national or international Select most appropriate to your needs They insist on a clear, formal business plan for any loan Follow their instructions, as local banks may not have great understanding of business detail, and rely on their own instructions from head office Plenty of information readily available from all high street banks to get an application together

12 Friends, family, self n If you borrow from people you know, it is important to have a formal, legal agreement n This will make it clear who owns what, and the expectations of both parties over earnings and repayments n Ensure that any borrowing is clearly for company work, not private projects n Everything must be accounted for

13 Business Plan n Investors are interested in finance, and whether the development is likely to be secure or risky n For any business, you need to have a plan at all stages of development n There are many versions which banks may require, and also many handy books or discs on how to draw up your plan, using many of the financial accounts we have covered, and investment appraisal