1. Business FinanceOptions The Choices Simplified Business Link

2. Introduction Mike Stutter Business Finance Adviser 3. Agenda

Finance - what are the options?

Expectations of funders

Debt and Equity

Government & Regional finance schemes

Preparing for funding & business plans

Conclusions and next steps

4. Finance- what are the options?

Debt and Equity main concepts and differences

The affects of equity dilution and the risks of debt to a company

Financing must be driven by the business strategy, not vice versa

5. Types of Finance

Bank Lending - Overdrafts & Loans

Enterprise Finance Guarantee

Asset Finance

Factoring and Invoice Discounting

Regional Funds & Secondary Lenders

6.

Historically provide Overdrafts and Loans

Requirements :-

Demonstrable ability to repay

Tangible Security e.g. Freehold Deeds, Life Policies ,personal guarantees etc.

Financial Viability (Ratios)

% margin above base rate

Track record

Banks 7. Working Capital

Debtors

Stock

Work in Progress

Creditors

8. Ratios

Stake

Current Ratio (Assets V Liabilities)

Net Worth (Solvency)

Interest Cover (Serviceability)

9. What banks really dont like!

Lack of track record

Start ups - no sales yet!

Lack of available security against lending

Poor credit history of the company itself or its directors personally

Higher risk proposals

10. Asset Finance

Purchase of Equipment

Refinance of existing equipment i.e. buy back

Security is the asset but additional security may be requiredsuch as personal guarantees or charge over property.

11. Factoring and Invoice Discounting -

• • Finance is tailored to working capital needs

• • Automatic support for growth

• • Security is the invoice raised

• • Leaves other business assets available as security

• • Care old perception of factoring is lending of last resort

• • Customer relationships may be damaged (factoring)

• • If sales reduce , the facility will reduce.

12. Enterprise Finance Guarantee (EFG)

• Replaces SFLGS

• Accredited Lenders

• Min 1K Max. 1m

• Currently 75% of debt guaranteed by Government

• Premium of 2%is payable

• New credit lines & refinancing of existing overdrafts permitted

• Personal Security allowable but unsupported

13. Regional Schemes & Secondary Lenders

South West Loan Fund

Small Loan Scheme max 50k

Business Loan Scheme - 50k+

Max 5 years

Solvent growth businesses

Carbon Trust Loans - Equipment

Other Locally Based Regional Funders e.g Enterprise Development Funds

14. Grants

R&D Grants

Grant for Business Investment (GBI)

Business Link Web Site-Grant search

15. Equity and where to find it

The nature of company ownership

• Must be Limited Company

Sources

• Venture Capital and private equity

• Business Angels

• SWAIN

• Large accountancy practices

• Beer & Associates

• Friends, Family, Staff

16. Equity - statistics

Only 6% of private equity is invested in start-up or early stage companies

Most equity is invested in more mature, larger companies

Success rates with applications for funding = 1% with VCs and 5-10% with business angels

So its not that easy to get equity funding!

17. Expectations of funders - equity

Equity investors

• Exit strategy - Trade sale, Management Buy Out, or Flotation in 3+ years

• Realistic Valuation

• High Returns required

18. Equity

• No interest cost

• No security needed

• No repayment of capital

• Potential skills of investors, or strategic partner

• Leverage for debt

• Dilution of ownership

• Cost (high returns demanded)

• Lead time to obtain it

19. The funding process and costs

How long it takes to raise debt or equity

Negotiation of terms

Due diligence - lots of questions

Legal documents far more if you are raising equity

Costs - manage them proactively

20. Business plans and forecasts - getting them right

Contents -10/12 pages +appendices as appropriate

2 page Executive summary

Do It Yourself! - must be written by management, not by your accountant

Use an accountant to help produce the financial forecasts

Refer to BUSINESS LINK website for guidance

Be clear on product and route to market

21. Conclusions

Successful debt or equity fundraising depends on the following ingredients:

• A well defined business strategy

• A well prepared business plan

• Robust and deliverable forecasts

• Firm negotiation of terms

22. Questions ?