Raising finance in order to help a business reach its full potential is one of the most important and most complex challenges a business can face.
There are a wide-range of financing options available to many businesses. Which of these is most appropriate to your business often requires specialist advice. The information available here aims to provide a brief overview of the potential corporate finance options for businesses in the UK. Please note that this is a highly complex area, and each potential source of finance has its own detailed qualification criteria.
Equity finance
Equity finance is most commonly investment of funds into a company in exchange for a proportion of the company’s share stock. Please note this is a very complex area and professional advice should always be sought.
Business Angels are generally wealthy individuals who are prepared to invest relatively small sums in a start-up or potentially high growth company in return for an equity stake and often an element of control. You can seek advice at the Yorkshire Association of Business Angels or the British Business Angels Association.
Also known as Private Equity Investments, Venture Capital is typically for large investments in businesses with high growth and return expectations. Similarly to Business Angels they can bring expertise to a company in return for equity and some control. More advice is available from the British Venture Capital Association and the European Private Equity and Venture Capital Association
Listing the shares of a company on the Alternative Investment Market (AIM) (a specialist market from London Stock Exchange) makes shares available for public purchase, and the value of the company is subject to the open market. Companies need to appoint specialist advisors to take them through the listing process, which can be both lengthy and costly.
There are other, publicly-backed sources of equity investment also available, some of which include:
- South Yorkshire Investment Fund - equity-linked packages from £50,000 to £2.5million are available subject to rigorous criteria on a case-specific basis. The stake sought is typically a minority stake with an exit sought within 5 years.
- Early Growth Fund - this is a DTI-backed scheme to match private equity investments on the same terms, and is typically up to £100,000 in value. The scheme in Sheffield is known as the Viking Fund.
- Regional Venture Capital Funds - managed by the YFM Group in Yorkshire & Humberside, this fund can provide initial investment in SMEs, and must be the first institutional investor.
Non-equity finance
Generally this takes the form of loan finance provided by banks, although overdraft facilities and debt-factoring may also be used by businesses to assist with cash-flow. All major banks have corporate departments who will handle business loans and commercial mortgages as well as business accounts and overdraft facilities.
There are also a range of government-supported schemes designed for businesses who have difficulty in accessing finance:
- Small firms up to five years old may be able to take advantage of the Small Firms Loan Guarantee scheme (SFLG). This is a government backed project that provides companies without security to take up conventional loans to support a viable business plan.
- South Yorkshire Investment Fund - available to both start-ups and existing businesses these loans range from £15,000 to £150,000. They are lent on an unsecured basis to encourage business growth at competitive rates.
A wealth of advice can be found from Business Link and the Small Business Advice Service.