The Government has tried hard, very hard, to get our banks to lend to businesses. And some banks have lent, so long as the business is robust enough and can prove a decent trading record. These recipients are however not the businesses that really need the funding. What about the struggling entrepreneurs with the great ideas that have started small, thought big and grown carefully?
We’re not suggesting that every new business idea is going to work, in fact about 7 out of 10 new businesses survive for only 2 years (although statistics fluctuate). Mr Cameron realises what a significant sector the small business economy is in the UK: There are 4.5 million small businesses accounting for 99% of all the UK enterprise. constituting 58.8% of private sector employment with an estimated combined annual turnover of £1,500 billion. Not to be sniffed at. No wonder all the Government enthusiasm for backing entrepreneurs.
So back to the thorny question of how to get them funding when they need it. Firstly the banking route, the Enterprise Finance Guarantee whereby the Government guarantees lenders 75% of the loan funding for borrowers who lack sufficient security to get a normal commercial loan. This is delivered through approved lenders (mostly banks) on amounts between £1000 and £1million to enterprises with a turnover of up to £44 million.
Then there is the Funding for Lending initiative where commercial banks can exchange existing collateral for Treasury bills at an interest rate of 0.25%. They will then be able to borrow wholesale money cheaply using these bills as backing and lend the wholesale money to homes and small firms. Or at least that is the objective. Four out of ten small businesses were refused bank credit in the second quarter of 2012 (FSB) so it will be interesting to see how the banks go with this scheme.
If you are a young person wanting to start a business then you can apply to the Start-up Loan Scheme where the Government has made around £80m available to help young people start out in business. Anyone aged between 18-24 can apply and the average loan is around £2500, repayable within 5 years.
Following on from the Enterprise Investment Scheme (EIS) is the Seed Enterprise Investment Scheme (SEIS). Investors can commit £100,000 in any tax year and spread their investment over a number of companies, receiving up to 50% tax relief in the relevant investment year. Businesses eligible for loans under this scheme must be no more than 2 years old, have assets less than £200,000 and fewer than 25 employees.
If all the above is just too confusing or complicated, the alternatives include organisations which match lenders to borrowers. Thincats target loans between £50k and £1m, Seedrs specialises in lending up to £150k seed capital to entrepreneurs, Iwoca offers capital to on-line market retailers and Funding Circle offers low cost loans as well as asset-based loans.
This week Prince Charles called small businesses ‘the bedrock of any economy’. The Princes Trust Enterprise Scheme has helped 78,000 young people into a new venture so there’s another option if you are a young person looking to create a new business. Or there is the Fredericks Foundation which offers microloans up to £10,000 to people in the South of England for businesses who have been unsuccessful in raising bank funding.
And we haven’t event started yet on other forms of business funding – invoice factoring, angel investors, asset funding, leadership and management funding, high growth funding, local grants or specialist industry focused grants. It’s a wonderful gallop through the tulips getting the right money for your business. Get in touch if you want some more tips!