truro - funding update

Funding Update

December 2014

David Bullen & Richard

Wadman

www.francisclark.co.uk

Banks – a tale of two graphs

Source: Bank of England


Banks – a tale of two graphs

•


Appetite and Leverage

• “£7.9 billion of new SME borrowing was approved in Q3,

around 13% more than in the same quarter last year and

the highest quarterly amount since 2011” - https://www.bba.org.uk/news/statistics/sme-

statistics/bank-support-for-smes-3rd-quarter-2014/#.VHi3wFIqWpo

• All are now “open for Business” – but the definition of

‘Business’ varies!

• Frontline enthusiasm, often not matched by Credit

• Non-financials/reputational risk

• Significant variation in approach/process


Appetite and Leverage

• Depends on the nature and structure of a transaction

– expansion/acquisition/MBO

• Generally 2.5 - 3X EBITDA

• But competition will drive higher


Rates and Terms

Source: Bank of England

3.00

3.50

4.00

4.50

5.00

5.50Jan…

May

…

Sep…

Jan…

May

…

Sep…

Jan…

May

…

Sep…

Jan…

May

…

Sep…

Jan…

May

…

Sep…

Jan…

May

…Len

din

g ra

te (

%)

SME Lending Rates (margin over base)

All SMEs

Should look to achieve lower margins than above + care margin over

what?


Rates and Terms

• Likely to go up –

but not by much for a

while

• Lending documentation

continuing to grow

• Harsh terms for

Borrowers?

• SME negotiating position

generally weak – but can to

look to very “standard

terms”• Personal guarantees - easy to give, hard to get

back

Source: www.thisismoney.co.uk

Predicted UK interest rate changes:


Funding Landscape (Non-bank)

• https://www.gov.uk/business-finance-support-finder

• 630 schemes (down from 742 schemes)

• Main sources of grants, include

• EU funds (ERDF and ESF)

• Regional Growth Fund

• British Business Bank

• City Deals

• Big Lottery

• Innovate UK (Technology Strategy Board)

https://www.gov.uk/business-finance-support-finder


External Funds – The Sources

Regional Growth Fund

• Monies left behind on dissolution of RDA’s

• £2.4bn

• 2011 to 2015

• Applications > £1m

• Competitive process

• Round 6 open

• RGF funded schemes for SMEs

• Incl; PWGF1, PWGF 2, GGF+ and Assisted Asset Purchase

• Not sector specific, criteria different for individual schemes


External Funds – The Sources

EU

• Convergence: Cornwall 2007 to 2013

• EU (announced June 2013)

Cornwall: €592.9 million (£507 million) between 2014-2020

Devon and Somerset:118 million euros (£100 million).

• Eligibility

Location, Displacement, Quality Jobs, Sector exclusions


“State aid”

Key phrases

• “De minimis” (< 200,000 euros over 3 fiscal years)

• Block exemption

• Assisted Area

Care

• Other grants

• R&D Tax Credits

• EIS/ SEIS

• Enterprise Finance Guarantee Scheme


Grants, Debt and Equity - Funds

RGF: Individual applications (> £1m)

• Quality projects

• Generate private sector investment and

create sustainable jobs.

• The level of grant is subject to State Aid

rules

• Robust need for grant argument.

• Maximum grant intervention rate c 30%:

• Round 6 applications now being assessed.

• Some Francis Clark successes in previous

rounds and some being assessed now..



Cornwall Development Company administered

• Business Investment in Growth (“BIG”) Voucher

Scheme

Grants of £1,000 up to £50k

Match funding

“step change” expenditure

High growth businesses

Average £9k / job created

Convergence

http://www.francisclark.co.uk/blog/general/business-

investment-for-growth-voucher-scheme

Closed – Kind of!

http://www.francisclark.co.uk/blog/general/business-investment-for-growth-voucher-scheme



Cornwall Development Company administered (ERDF)

• Business Innovation Fund

Grants from £1,000 to £50,000 for 50% of project cost

“Projects at any stage of development process for new and

existing products and services”

“Project has to involve buying in specialist services from

CUC universities, colleges and other Higher Education

Institutions (HEIs), Intellectual Property solicitors, Market

Research agencies, Process, Manufacturing or Product

Design specialists”

ERDF European Funding eligibility applies.

http://www.francisclark.co.uk/news-views/blog/bif-bang-innovation-fund-for-smes-

live-in-cornwall/

http://www.francisclark.co.uk/news-views/blog/bif-bang-innovation-fund-for-smes-live-in-cornwall/


Grants, Debt and Equity – The Funds

Cornwall Marine Capital Fund – Round 2 is open now

• Grant funding £50k - £500k for Cornish/ SW based businesses operating in

the marine sector;

• Intervention rate 10%-40% depending on value for money, size of business

and direct jobs created (large businesses can receive no more than 30%);

• Eligible costs are capital investment into equipment (new and modernisation),

premises (building new, modernisation, fit out and bringing old businesses

back into use) and marine renewable technology development;

• Allocation of funds to projects within the programme will only be made once

proof of match funding has been seen.

• Start with an online EOI

• http://www.cornwallmarine.net/52/about-cornwall-marine-network-6/rgf-

201/major-new-funding-opportunity-for-cmn-members-376.html

http://www.cornwallmarine.net/52/about-cornwall-marine-network-6/rgf-201/major-new-funding-opportunity-for-cmn-members-376.html



• Assisted Asset Purchase Scheme

Grant contribution to deposit on Asset Purchase

Parameters depend on bank e.g., Lloyds

• Grants < £500k

• 20% for Small Co and 10% for Medium Co

• 1 job created or safeguarded for £15k grant

• No minimum deposit from own funds (?)

• Balance of funds (min £100k) from Lloyds TSB

Lloyds TSB closed. HSBC AAP is closed. Nat West/ RBS is

open. Ignition Credit is open

RGF Funded


Previously known as “Grant for R&D”

Science, Engineering and Technology: New Products and Services

Grant support for SMEs:

• Proof of market (9 months, £25k, 60%)

• Proof on concept (18 months, £100k, 60%)

• Development of prototype (2 years, £250k, 35% / 45%)

Competitive / Batch Applications

Smart v R&D Tax Credits - cannot have both for same project


SMART

http://www.robothespian.com/blog/news-blog.html

http://www.robothespian.com/blog/news-blog.html

GROW: OFFSHORE WIND

Funding available for:

• Tangible assets: such as purchasing additional land,

new buildings, plant, machinery and equipment

• Intangible assets: for example, securing patent rights and

licenses

• Employment costs: investment needed to meet wage costs

resulting directly from an offshore wind investment project[1]

• Access up to 30 per cent of project costs, with a

maximum total programme funding cap of £500,000.[2]

[1] Note: All funding must meet European Commission funding criteria. Applicants will be supported by their

GROW:OffshoreWind advisor to understand relevant criteria.

[2] For SMEs in a limited number of European Commission designated Assisted Areas there is scope to fund up to 50 per

cent of eligible project costs.

http://www.growoffshorewind.com/

http://www.growoffshorewind.com/



Coming soon – North Devon Plus

• RGF backed grant scheme

• HoSW LEP area only

• ‘Formal’ launch expected early 2015

• Likely process (still to be signed off by BIS):

• EOI (£100 fee)

• Prepare application documents and submit (with/without assistance)

• ‘Internal’ DD

• Panel meeting; if approved

• External DD – We will (likely) be tendering for this work

• Formal decision



Coming soon

• RGF backed scheme

• EU funding

• 2015


Grants

Factors contributing to a successful application…

1. Project

2. Eligibility

3. Robust Business Case

4. Business Plan (and Financial Projections)

5. Dialogue with fund holders

6. Understanding their requirements: strategic and operational

7. Need for grant

8. Patience/ Completeness

9. Understanding timelines

10. Match funding – seldom 100% intervention and seldom pay in

advance of defrayal


• South West Loans Fund

Up to £50k – SWIG

£50k to £250k – FC Fund Managers

Commercial terms for viable growth businesses [with

funding gap]?


SWIG and FC Fund Managers administered



SWIG administered

• Start Up Loans (Also available from Outset Finance -

business trading < 1 year)

Loans between £500 and £9,900 @ low interest rate (6%)

Flexible repayment terms

Fully funded business advice putting together business plan

Fully funded support from a business mentor for a year

http://swigstartups.co.uk/what-we-do/

• Microcredit Fund

Loans of up to £7,500; 3 year term @ commercial rate of

interest. 2% arrangement fee.

Start-ups and existing businesses in Plymouth, Torbay, Bristol,

Swindon and parts of Western Super Mare

http://swigstartups.co.uk/what-we-do/



• £1.2 million loan fund

• Funded by RGF

• Aimed at South West micro, small and medium sized businesses, with growth

potential, which are unable to secure all the funding they need (i.e. from the

bank);

• Available to most sectors, including those ineligible for European Funding;

• Loans £10,000 - £100,000 (average £30,000)

• Maximum term 5 years

• 10% fixed annual interest rate

• Arrangement fee of 2% of loan amount payable on loan draw down

• Businesses must demonstrate investment will create or safeguard jobs

• Available to start up and existing businesses

• application process starts by completing an eligibility form

• http://www.francisclark.co.uk/news-views/blog/south-west-investment-group-

swig-add-new-loan-to-their-arsenal/

SWIG administered

http://www.francisclark.co.uk/news-views/blog/south-west-investment-group-swig-add-new-loan-to-their-arsenal/



The Banks…including

• Santander’s Breakthrough fund

£200m for SMEs (turnover < £25m)

Mezzanine Loan

Interest only: 5% over LIBOR paid quarterly, further 5% rolling

up

No set limits on sums borrowed but c £500k to £3m

Not for start-ups

Track record of profitable and cash generative growth (20% pa)



Others

• Energy Efficiency Financing Scheme

Siemens Financial Services and Carbon Trust

Business trading > 36 months

Investment in energy efficient equipment (and renewable energy

generation?)

Loan e.g., Interest rate c 9% for a 7 year term loan repayable in monthly

instalments.

• ReEnergise SmartEnergy Finance

Investment in renewable energy and energy efficient projects

£5m fund

SMEs – loans of £25k to £250k on commercial terms

Target sectors incl manufacturing, leisure and hospitality



Routes to Equity

• “Friends, Families and Fools”

Include related businesses?

• Networks e.g., SWAIN, OXIN

• Conduits e.g., UEC Enterprises, GAIN?

• Virtual Networks e.g., Crowdcube

• Venture capitalists and Private Equity e.g., Piper

Private Equity, Altitude Partners LLP, Longwall

Venture Partners, LDC or Dunedin



Routes to equity – government led interventions

• Business Growth Fund

Commercial Fund

Bank financed

Investments of b/w £2m and £10m

Minority stakes

Relaxed on sectors – but no property or financial services

T/over > £5m (but will speak to clients earlier)



Routes to equity – government led interventions

• Angel CoFund (RGF)

Initial Equity Investments

£100k to £1m

Alongside syndicates of Business Angels

Upper limit of 49% of any investment round

No direct applications by SME


The funds…

Crowdsourcing

• Equity e.g.,

• Crowdcube - http://www.crowdcube.com/

• BrewDog - http://www.brewdog.com/equityforpunks

• Debt e.g.,

• Funding Circle https://www.fundingcircle.com/

• Folk 2 Folk http://www.folk-folk.com/

• Rewards e.g.,

• Crowdfunder http://www.crowdfunder.co.uk/

http://www.crowdcube.com/

http://www.brewdog.com/equityforpunks

https://www.fundingcircle.com/

http://www.folk-folk.com/

http://www.crowdfunder.co.uk/


UK Alternative Finance Industry

• The UK Alternative Finance Industry Report 2014

• Different models (pg 8)

• 44 facts… (pg 10)

• P2P Business Lending (pg 28)

http://www.nesta.org.uk/publications/understanding-alternative-finance-uk-alternative-finance-industry-report-2014


MAS


UKTI

Support to........• Develop an export strategy – Passport to Export (£3,000), Gateway to

Global Growth (£3000)

• Undertake market research (including identifying potential partners) –

EMRS (50% match), OMIS (subsidised)

• Visit & develop new export markets – MVS (£200-£850)

• Improve international communications: website, email, languages &

culture – ECR (subsidised), ECR EV (£3000)

• Exhibit overseas – TAP & TAP SOLO (£1,000 to £2,500)

• Carry other marketing and sales development activities - European

funding (ERDF) (£1,000 to £30,000)


Growth Vouchers

Launched end of January 2014

50% subsidy up to £2k for advice on:

• Managing cashflow, late payments and negotiating finance

• Developing skills and taking on staff

• Improving Leadership and Management

• Marketing, attracting and keeping customers

• Making the most of digital technology

• www.gov.uk/government/collections/growth-vouchers-programme

• https://marketplace.enterprisenation.com/

• http://www.francisclark.co.uk/news-views/blog/growth-voucher-

scheme/

http://www.gov.uk/government/collections/growth-vouchers-programme

https://marketplace.enterprisenation.com/

http://www.francisclark.co.uk/news-views/blog/growth-voucher-scheme/


GrowthAccelerator

• Mentoring / 7 days coaching

• Leadership & Management (“L&M”)

• subsidised assistance with projections for example, £2k per

member of management team

• Costs

• Companies with 1-4 employees – £600 plus £700 VAT

• Companies with 5-49 employees – £1500 plus £700 VAT

• Companies with 50-250 – employees - £3000 plus £700 VAT


GrowthAccelerator - NEW

• Growth Impact Pilot: L&M available to growth businesses:

• Registered in UK and based in England;

• <250 Employees; and

• T/o £250k - £2m at time of joining.

• Key areas:

• Developing and effective personal leadership and management style

• Leading and managing high performance

• Planning and developing an effective organisation

• Sustaining growth and continuous improvement

• Embedding a culture of innovation

• New market entry

1 in 2 then receive offer of additional specialist coaching scheme but only £700 VAT

is charged (fee met by GrowthAccelerator).


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truro - funding update

Economy & Finance

bank of england

bank directors

metro bank emerging

local lending discretion

local presence

lending documentation

multimillion pound lending

terms source