Access to finance
The Government’s aim is for more UK entrepreneurs and businesses to be able to access the finance they need to enable greater levels of enterprise, whether expressed through start-up or growth.
The Government’s aim is for more UK entrepreneurs and businesses to be able to access the finance they need to enable greater levels of enterprise, whether expressed through start-up or growth.
We are doing this in a number of different ways.
First, we are encouraging all businesses to seek more advice about their finance. We know that in the UK only 25% of small businesses think of themselves as being good at getting external finance. We also know that 58% of small firm employers who received advice reported improved business performance.
As well as working with the financial advice industry, the Government is providing free advice and guidance on http://www.improve.businesslink.gov.uk/finance
Second, the Government also makes a number of interventions in financial markets to help increase access to finance to British companies.
Existing Government support for SMEs seeking finance
Enterprise Finance Guarantee (EFG)
How does it work? EFG is a loan guarantee scheme designed to facilitate additional lending to viable SMEs lacking the security or proven track record for a commercial loan. It is not a replacement for commercial products and will account for 1%-2% of total lending to SMEs. The Government provides the lender with a 75% guarantee for each individual loan, subject to a cap on total claims arising from a Lender’s portfolio.
Who delivers the scheme? Accredited lenders. There are currently 45 accredited lenders, including all main UK High Street Banks. New lenders are being accredited, including Metro Bank, who will offer EFG guaranteed loans from January 2012. All lending decisions are made by the lender.
Who can apply? EFG is open to SMEs with an annual turnover of up to £25m [rising to £44m from January 2012] seeking loans between £1000 and £1m, repayable over a period of 3 months to 10 years. More information can be found at www.bis.gov.uk/efg
Export Enterprise Finance Guarantee (ExEFG)
How does it work? ExEFG facilitates the provision of short term export finance to viable SMEs which lack the security necessary to obtain such facilities commercially. As required by EU State Aid rules, the scheme operates on a commercial basis. The Government provides the lender with a 60% guarantee for each individual facility, subject to a cap on total claims rising from a lenders annual portfolio. The borrower pays an upfront 3% per annum (pro rata) premium regardless of facility utilisation or drawdown, to meet the costs of the scheme.
Who delivers the scheme? Accredited lenders, which are: Barclays, HSBC, Lloyds Banking Group, RBS and Santander.
Who can apply? ExEFG is open to viable SMEs with an annual turnover of up to £25m seeking short term export finance between £25,001 and £1million for terms of up to 2 years (available in increments of 3 months).
More information can be found at www.bis.gov.uk/ex-efg
Enterprise Capital Funds (ECFs)
What are they? For many young innovative firms equity finance is the best option to reach their high growth potential but many struggle to obtain this form of finance. This is often because the relative high costs of undertaking due diligence in early stage companies, in relation to the deal size, often means that investors prefer to make larger investments in later stage companies. This disconnect is called the 'equity gap'. Enterprise Capital Funds (ECFs) address this market weakness.
How does it work? The ECF uses government funding alongside private sector investment to bridge this gap. Nine such funds have been launched since 2006.
Who delivers the scheme? ECFs are administered by a government-appointed fund manager Capital for Enterprise Limited (‘CfEL’). CfEL can be contacted on 0114 206 2131 or by email on info@capitalforenterprise.gov.uk.
More information can be found at www.bis.gov.uk/policies/enterprise-and-business-support/access-to-finance/enterprise-capital-funds or www.capitalforenterprise.gov.uk
Business Angel Co-Investment Fund
What is it? The £50m Business Angel Co-Investment Fund aims to support angel investments into high growth potential early stage SMEs, particularly in areas worst affected by public spending cuts.
How does it work? The fund has been created with a grant from the Regional Growth Fund and is able to make initial equity investments of between £100K and £1M in to SMEs alongside syndicates of business angels (subject to geographical restrictions and upper limit of 49% of any investment round). Investment decisions will be made by the independent Investment Committee of the fund based on detailed proposals put forward by business angel syndicates.
Who delivers the scheme? The fund has been designed and established by a consortium of private and public bodies with expertise in business angel investment. It is a private sector body with clear objectives to boost the quality and quantity of business angel investing in England, and to support long-term, high quality jobs in high growth companies.
More information can be found on http://www.angelcofund.co.uk/
New schemes to be launched soon
The National Loan Guarantee Scheme (NLGS)
This is a new Scheme that was announced by the Government on the 29 November and will be launched soon.
How does it work? The scheme will allow banks to raise up to £20bn of funding guaranteed by the Government, to lend directly to smaller businesses at a lower cost.
When will it be up and running? The scheme will be up and running early next year, subject to state aid approval. Banks will be able to apply for a guarantee within a two year window.
Who will deliver the scheme? Banks that sign-up to participate in the scheme and commit to pass through this lower cost of funding to business customers. Customers should apply to participating banks once the scheme is up and running.
Who will be eligible to apply? UK businesses with a turnover of up to £50m.
How will businesses benefit? Smaller businesses do not have ready access to capital markets and are therefore reliant on banks for credit. This scheme will ensure that customers are able to borrow more cheaply than they otherwise would have been able to. In many cases, the scheme will lead to a reduction in the cost of business loans of up to 1 per cent.
Business Finance Partnership (BFP)
This is a new Scheme that was announced by the Government on the 29 November and will be launched soon.
How does it work? The BFP will invest an initial £1bn in loan funds, alongside private sector co-investors. These funds will then lend to mid-sized businesses, helping to diversify the channels of finance available to them. The Government will also consider options for investing through other non-bank lending channels that reach SMEs.
When will it be up and running? The Government is now engaging with relevant stakeholders on the BFP, and inviting expressions of interest from potential fund managers for the Government’s co-investment. Further details have been set out at http://www.hm-treasury.gov.uk/d/business_finance_partnership.pdf.
The Government expects to commit the first funding to loan funds in spring 2012.
Who will deliver the scheme?
HM Treasury will operate the BFP, making decisions about which loan funds to invest in. However, the managers of those loan funds will then make individual lending decisions. It will focus initially upon co-investment, with private sector investors, in managed funds that lend directly to UK businesses. The Government is currently inviting expressions of interest from potential fund managers for the Government’s co-investment.
Who is eligible? Businesses in the UK with a turnover of up to around £500m. The exact definition will be set early in 2012.
How will businesses benefit?
The BFP will aim to both increase the supply of capital through non-bank channels and, in the longer term, to help to diversify the sources of finance available to businesses.
Seed Enterprise Investment Scheme (SEIS)
This is a new Scheme that was announced by the Government on the 29 November and will be launched soon.
How does it work?
SEIS will provide income tax relief of 50% for individuals who invest in shares in qualifying companies, with an annual investment limit for individuals of £100,000 and cumulative investment limit for companies of £150,000.
In addition, the Government will offer a capital gains tax holiday for investments made into the new scheme. This will provide for a capital gains tax exemption on gains realised on disposal of an asset in 2012-13 and invested through SEIS in the same year.
When will it be up and running? The seed scheme will be operational from April 2012; the CGT holiday is time-limited to the tax year 2012-13 to 2013-14.
Other policies
