THE BUSINESS

FINANCE GUIDE
A journey from start-up to growth

New edition

THE BUSINESS FINANCE GUIDE (new edition) © ICAEW and

British Business Bank 2016 Typographical © in the design and
layout rests with ICAEW

If you want to reproduce or redistribute any of the material in

this publication, you should first get the joint copyright holders’
permission in writing. The views expressed in this publication
are those of the contributors. The publishers do not necessarily
share their views. The publishers will not be liable for any
reliance you place on the information in this publication. You
should seek independent advice.

ISBN 978 1-78363 659 4

1
In partnership with

2
Foreword

Together on the journey

Since the British Business Bank and ICAEW’s Corporate
Finance Faculty jointly published the first edition of THE
BUSINESS FINANCE GUIDE in summer 2014, a growing
number of alternative finance solutions have become more
established, mainstream and accessible for the UK’s smaller
businesses.

This increasing diversity of supply means smaller businesses

should be able to exercise more choice when considering
financing. Although our research shows businesses are
becoming increasingly aware of their options, many others are
still hampered in their ability to invest, grow and create jobs due
to a lack of such awareness and understanding of their choices.

The first edition of THE BUSINESS FINANCE GUIDE made a

good start in helping businesses become better informed. This
edition draws on the considerable expertise of a wider range of
partners from the finance industry and business community to
provide information on forms of finance and where to find them
– an essential starting point for businesses in selecting the
most suitable options for their circumstances and plans.

As well as being a handy guide to leaf through,

THE BUSINESS FINANCE GUIDE is now available online,
offering enhanced content and interactivity that allows
businesses to explore their financing options more easily. You
can find the online version at thebusinessfinanceguide.co.uk.

If you are involved in advising businesses, I would encourage

you to contact either the British Business Bank or ICAEW about
becoming a distributor of this publication.

3
The British Business Bank was set up with the aim of making
the UK’s finance markets work better for smaller businesses,
and building awareness of finance options is a big part of that. I
hope that this guide gives businesses the information they need
to capitalise on the variety of available finance so that they can
continue their journey to success.

Keith Morgan, Chief Executive, British Business Bank

Begin your journey now. The online version of THE

BUSINESS FINANCE GUIDE includes an interactive tool which
will guide you through every stage of the financing journey.

4
Contents

Introduction................................................................................6

All in the prep.............................................................................8

The journey..............................................................................15

Know your options...................................................................19

Know your options: Equity finance...........................................26

Know your options: Debt finance.............................................44

Invest in advice........................................................................60

Find support.............................................................................68

The British Business Bank.......................................................75

5
Introduction
Growing a business from the first seed of an idea is not a
smooth linear journey and it’s not as simple as going from A to
B. The destination is seldom decided as the business idea
takes form, becomes a reality and then grows into a successful
enterprise. The finance journey is continuous; there may never
be an arrival point.

For any business to travel on a journey it needs at all points of

that journey to be appropriately financed. Businesses need to
make sure there is the finance to back their growth plans.
Businesses are often started on overdrafts or credit cards, or
with help from friends or family or by using the family property
as collateral. But soon after that the business will need to be
financed so it can stand on its own two feet if it is to be a
sustainably growing proposition.

This guide will be invaluable for entrepreneurs who are starting

a business, directors who are running growing businesses and
established companies – of all sizes – as well as for business
advisers and investors.

It explains how to approach the financing decision, the

questions to ask and how to treat it as a business process, so
that it is not as daunting as it can sometimes seem. And if it
does get daunting, good advisers can provide further guidance.
This guide also provides details of where to obtain free advice
on raising finance.

Once a business is up and running on the growth journey,

management will need to ensure that future plans for growth
can be financed. If not, there is a chance the business will fail.
The table on page 56 shows the options available to, and the
decisions faced by, business-owners along that journey.

6
On the growth journey there will undoubtedly be ups and
downs. Through the life of a business, as soon as plans are
made, be they looking for growth or for survival or to batten
down the hatches, the finance must be in place to support
those plans.

7
All in the prep
The work to be done in getting a business to a position where it
can take on additional capital need not be too daunting a task;
however, nor should it be underestimated.

START by looking at the business afresh, with a questioning

mind, so that the answers to the questions a potential
shareholder or lender will probably raise are immediately to
hand.

Step out from your business

Take a fresh look at prospects and challenges

Analyse your opportunities

Reach for the future

Think about finance

8
Step out from your business

Entrepreneurs want to focus on doing business. For many,

finance falls under the category of administration, which
may not be their forte. But to make sure the business can
move forward entrepreneurs must step out from the
business and ask the questions that need answering.

Take a fresh look at prospects and challenges

Plans may have been made when the business was little
more than an idea. Things change and circumstances
move on. You need to make a fresh assessment of where
the business is, what the opportunities are, how achievable
they are and what new challenges there are to the
business.

Analyse your opportunities

You need to make a detailed analysis of the prospects for

the business in light of any changed circumstances. A
review of the new upsides and the new downsides needs to
be carried out and the impact of them assessed, together
with the probability of different scenarios.

Reach for the future

On the basis of the above analysis, prepare a detailed

forecast, looking at the forecast profit and loss (P+L)
account and balance sheet and then, crucially, at the cash
flow, which will highlight how much capital needs to be put
into the business to finance your latest plans.

9
 Think about finance

You then need to think about the financing options for the
business, how appropriate and how attainable they may be.
To secure debt financing and/or investment, you need to
make your business proposition clear and understandable
to your target audience – with a business plan. At this
stage a business is likely to require outside advice and
experienced resource to ensure that it is ‘investment ready’
for potential investors, giving it the best possible chance to
secure funding. Be open-minded. The funding landscape
has developed considerably over recent years and there
are a lot of options available – some are new and some
have been around for some time.

Business plan

Preparing a solid business plan is the key to securing funding.

A robust business plan helps potential lenders or investors
understand the vision and goals of the business. It also brings
focus to management’s understanding of the business strategy.
It helps them understand the risks inherent in the strategy and
the impact of any deviations from their plan – particularly
when it comes to funding.

Information will depend on the target audience, but it should

incorporate:

 an executive summary, highlighting the main points,

designed to grab the attention of potential lenders or
investors;

10
 details of key personnel, their responsibilities, skills and
experience;

 market analysis of the company, its products or services and

its competitors;

 details of current and intended client base;

 a marketing plan targeting new or existing customers;

 historical financial information covering the last three years

of trading (if available) – accounts (audited if available), and
key accounting ratios;

 cash-flow data, including information about standard

payment terms and typical debt turn;

 financial forecasts for the next three to five years, presented

as the historical information, and highlighting the key
underlying assumptions;

 cash-flow forecasts covering the next two to three years (or

in the case of a start-up or turnaround, until the business
moves into profit), clearly highlighting the amount of funding
required;

 how creditors, capital expenditure, debtors and stock will be

managed over the forecast period;

 additional ‘flexed’ forecasts showing the impact of key

downside scenarios, such as sales targets not being met or
cost savings taking longer to come on stream, may also be
included, or if required, must be included; and

 how equity investors can exit or refinance the business, and

realise their investment.

11
It must be clear how much of the existing owner’s money is
committed to the business. If a lender or investor thinks the
existing owner does not have enough ‘skin in the game’,
securing a loan or investment is likely to be more difficult, if not
impossible. The business should consider whether investors
would be eligible for tax reliefs (as described on page 32) and
ensure that it communicates this in the business plan. The
amount of any backing already received from other banks or
investors must be clearly stated. This can demonstrate the
attractiveness of the business as an investment.

If a business is looking for debt finance the plan needs to

demonstrate how the business will be able to both meet interest
payments and repay the capital element over the period of the
loan. A repayment schedule linked to the forecasts will make
this clear. And when looking for equity, the plan will need to
show how the potential shareholder would receive dividends
and how the value of the business and therefore their stake
would grow.

The plan should always be ‘fully funded’ – with sufficient

headroom so that the whole process will not have to be
revisited too soon. Whether it is short-term debt finance or long-
term growth capital, different equity investors and different debt
providers will all have specific requirements when it comes to
the content of business plans.

There is more detail on how to prepare a business plan on

the websites of many of the contributors to this guide.
Website details are on pages 68–74.

‘The best journeys in life are those that answer

questions you never thought to ask.’ – Rick
Ridgeway

12
Cash is king

Before looking for external capital, businesses should make

sure they are managing cash effectively. Some fairly simple
steps can help maximise available cash. Being able to
demonstrate good cash management also sends out the right
signals to potential investors or lenders.

The only way cash flow can be kept under control is by

understanding the ins and outs. A weekly cash-flow forecast is
often essential, particularly in a growing business.

Management must have an understanding of the amount of

cash and working capital required to operate the business.
Then working capital needs to be carefully managed. For
example:

 stock and work-in-progress (WIP) levels must be reviewed,

and excess stockholdings actively reduced;

 sales invoices must be issued in a timely manner and

through best-practice credit management procedures, with
payments collected within those terms;

 contractual agreements with suppliers should be reviewed to

generate cash and suppliers paid to credit terms;

 capital expenditure should be carefully assessed and

consideration given to the cash-flow implications of outright
purchase; and

 automated payment methods should be used wherever

possible – getting customers to pay by electronic transfer or
through direct debit helps increase the speed and certainty
of payment.

13
This approach to cash management is not just part of the
preparation for taking on new investment or debt; it is a
procedure that must be ongoing. With new stakeholders the
scrutiny of cash flow will likely be even greater as the
business’s journey proceeds.

14
The journey

Financing a business will often involve an injection of debt and

equity. This diagram shows the financing cycle, which is not
necessarily a journey that will end, and so involves continuous
review and reappraisal. Visit thebusinessfinanceguide.co.uk
for a guide to every stage of the finance journey.

What stage is your business at?

15
 Pre-trading

 Pre-profit

 Profitable and growing

 Established and growing

 Established and stable

 Established but stressed

What challenges and opportunities are there?

 Initial funding

 Launch product/ service/brand

 Organic sales growth

 Expand into new markets or areas

 Expand internationally

 Invest in new facilities

 Refinance/reduce cost of borrowing

 Need capital restructuring

16
 Improve cash position

 Acquisition plans

What financing options are available?

EQUITY

 Seed finance

 Angel finance

 Equity crowdfunding

 Venture capital

 Corporate venture capital

 Private equity

 IPO/public offering

DEBT

 Start-up loan

 Overdraft

 Bank loan/bond

17
 Peer-to-peer lending

 Asset-based finance

 Leasing or hire purchase

 Export or trade finance

 Growth finance

Do you take equity, debt or both?

What does your business look like with the new finance in
place?

Continue your journey

18
19
Know your options
For any entrepreneur, wherever they are on their business
journey, knowing what options there are along the way is key to
making successful progress. And, crucially, this applies to the
financing options.

The idea that an exact route can be mapped out for a business
is one road analogy too far. Running a business will throw up
many new challenges: closed roads or roads that lead to dead
ends, so being aware of the alternative routes is critical. You
may need to take advice on directions but if you are forearmed
with the knowledge that there are alternatives, the journey is far
less daunting.

This table shows the various options commonly available at

different business stages. Availability will, of course, depend on
the circumstances of a business.

‘I have noticed that even people who claim

everything is predestined, look before they cross
the road.’ – Stephen Hawking

20
For a comprehensive description of all the financing options
visit thebusinessfinanceguide.co.uk

21
 Equity options (pp 26 to 43)

1 2 3 4 5 6 7

What stage is your business at?

Pre-trading ●
Pre-profit ● ● ● ● ●
Profitable and growing ● ● ● ● ●
Established and growing ● ● ● ●
Established and stable ●

22
Established but stressed ●
What future plans, challenges or
opportunities are most important
in your business right now?

Initial funding ● ● ● ●
Launch product/service/ brand ● ● ●
Organic sales growth ●
Expand into new UK markets or
areas ● ● ●
Expand internationally ● ● ●
Invest in new facilities ● ●

23
 Refinance/reduce cost of borrowing ●
Need capital restructuring ●
Improve cash position ●
Acquisition plans ● ●
Key: 1 - Seed finance; 2 - Angel finance; 3 - Equity crowdfunding; 4 - Venture capital; 5 -
Corporate venture capital; 6 - Private equity; 7 - IPO/public offering.

24
 Debt options (pp 44 to 59)

1 2 3 4 5 6 7 8

What stage is your business at?

Pre-trading ●
Pre-profit ● ● ● ● ● ●
Profitable and growing ● ● ● ● ● ● ●
Established and growing ● ● ● ● ● ● ●
Established and stable ● ● ● ● ● ●

25
Established but stressed ● ● ● ● ●
What future plans, challenges or
opportunities are most important
in your business right now?

Initial funding ●
Launch product/service/ brand ● ● ● ● ●
Organic sales growth ● ● ● ● ● ●
Expand into new UK markets or areas ● ● ● ● ●
Expand internationally ● ● ● ●
Invest in new facilities ● ● ●

26
 Refinance/reduce cost of borrowing ● ● ● ●
Need capital restructuring ● ● ●
Improve cash position ● ● ●
Acquisition plans ●
Key: 1 - Start-up loan; 2 – Overdraft; 3 - Bank loan/Bond; 4 - Peer-to-peer lending; 5 - Asset-based
finance (includes asset-based lending, factoring, invoice discounting and supply chain finance); 6 -
Leasing & hire purchase; 7 - Export or trade finance; 8 - Growth finance.

27
Know your options: Equity finance
You can look to equity investment as a way to finance many
different stages of the business journey. Whether starting out or
experiencing a high-growth phase, equity is an important part of
finance arrangements for businesses and usually brings
broader expertise with it.

It is also important to recognise that some investors can take a

minority stake – not always a majority stake. Investors’ interests
are aligned with the business, meaning all are on board for the
growth journey.

The angels who backed my businesses, backed

me from an early stage, through international
expansion, all the way through to flotation. We
could not have made that journey without them.’ –
Sherry Coutu, CBE

At an early stage, businesses will need long-term backing to

fund the business through to revenue and profit – this could be
through business angels and/or venture capital and is
commonly in different rounds with different parties. In the
shorter term, equity investment can support an aggressive
growth strategy.

In simple terms, equity financing is the raising of capital through

the sale of shares in a business. Equity can be sold to third-
party investors with no existing stake in the business.
Alternatively, equity financing can be raised solely from existing
shareholders, through a rights issue.

28
Think about the future

You need to consider several issues before selling a

stake in your business in exchange for capital. Here
are the main advantages to a business of different
forms of equity finance.

 Equity funding is committed to the business and its

intended projects, even if plans change.

 Equity investors take a risk acquiring shares. In

exchange they can see uplift in the value of their stake if
the business performs well, as a result of the
deployment of that additional capital.

 Investors have aligned interest with the business

towards the pursuit of its growth and success. Its growth
and profitability will increase the value of the business
and therefore their shareholding.

 As well as taking a stake in the business, the right

angels, venture capital investors or any other equity
investor can bring valuable resource to the business.
Their skills, experience and contacts can help with the
development of the business strategy.

 If it is a private company, the business owner can sell

their stake privately to a willing private buyer, or if the
business is to be listed they can sell their shares
through the flotation.

 Investors are often prepared to provide follow-up

funding as the business grows.

 Public equity raising provides a liquid market, which can

29
 be accessed if further fundraising is required for future
growth plans.

 Equity crowdfunding provides a company with wider

access to capital providers among customers and the
public.

 The crowdfunding process can be relatively quick and

attract customers at the same time.

Founding shareholders will have put the initial equity into the
business. Friends or family may have ‘invested’ in the early
stage of a business’s journey. Business angels may then take
an equity stake. Venture capital (VC) investors, (also known as
venture capitalists), corporate venture capitalists or private
equity (PE) investors tend to be an option at the growth phase.
Financial institutions or the wider public may invest in equity
through a listing of the company’s shares. The public may also
acquire equity stakes through equity crowdfunding platforms. In
reality, it is not quite that simple – business angels, for
instance, may invest at many stages in the business’s growth.
As it progresses, a company’s shareholder register will be a
mix of investors who have taken stakes at different stages of its
journey.

Unlike debt providers, or lenders, (see the debt finance section

on page 44), equity investors do not have rights to interest, or
to have their capital repaid by a certain date. Shareholders’
return is usually paid in dividends or realised through capital
growth. Both are dependent on the business’s growth in
profitability, and its ability to generate cash. Because of the risk
to their returns, equity investors will expect a higher return than
debt providers. Where a project requires longer-term

30
investment than conventional debt offers, equity will be the
most suitable form of finance.

There is also a hybrid of debt and equity finance –

mezzanine. Mezzanine and growth capital loans are
covered under growth capital in the debt finance section.

Other considerations for businesses looking for equity

investment.

 Raising equity finance can be costly. It demands

management time, which may be diverted from the day-
to-day running of the business.

 Potential investors will scrutinise past results and

forecasts of future performance, and will investigate
background information, including that of the
management team.

 The owner’s share in the business will be diluted. And

once the new shareholders invest, management will
face varying degrees of influence when making major
strategic decisions, of course depending on the nature
of the shareholding and the stake acquired.

 Management time will need to be invested in producing

regular information for the investor to monitor.

 There can be legal and regulatory requirements to

comply with when raising equity finance.

 There are more disclosure and governance

requirements if a company raises capital from public
markets.

 Crowdfunds are normally ‘fill or kill’ – if a proposition

31
 does not hit its target it receives no investment at all.

 Dividend payments are not deductible for tax purposes.

Business angels

Business angels are individuals who make equity investments

in businesses with growth potential, businesses in the early
stages of development, or in established businesses looking for
expansion capital. Angels back high-risk opportunities, with the
potential for high returns.

Some invest on their own, others through an angel syndicate or

club. However, the most significant trend is for angels to invest
in syndicates or groups, generally with a lead angel. At seed
stage, lower amounts of funding may be available. Businesses
in the growth stage may be able to attract higher amounts from
angel syndicates. Angels can offer multiple rounds of finance
and frequently co-invest with other sources of equity and co-
investment funds as further growth finance is required.

When taking on angel investment, a business should look

beyond the capital they put in. Most angels can bring valuable
first-hand experience of growing businesses, often early-stage
businesses. Their skills and experience will be shared with the
business, as well as their network of contacts. Most focus on
investments within a small geographic area, and so have local
knowledge and local networks. Angels often make investment
decisions quickly, without complex assessments. However,
tracking down the right angel can take time.

Find out more through the UK Business Angels Association,

ukbusinessangelsassociation.org.uk.

32
Venture capitalists

Venture capitalists invest in businesses with the potential for

high returns – those with products or services with a unique
selling point, or competitive advantage. They invest in a
portfolio where a significant number of businesses may fail, so
those that succeed have to compensate for those losses. They
also want proven track records, and so rarely invest at the start-
up stage. Like angel investors, venture capitalists bring a
wealth of experience to the business. They are unlikely to get
involved in the day-to-day running of the business but will often
help focus the business strategy.

Securing VC investment can be a complex, costly and time-

consuming process. A detailed business plan is a must. And
legal fees will be incurred through the deal negotiation,
regardless of whether investment is ultimately secured.

Corporate venture capital (CVC) is another growing source of

funding for small businesses. It describes a wide variety of
equity investment undertaken by a corporation, or its
investment entity, into a high-growth and high-potential,
privately-held business. CVC performs the same economic role
that private venture capital plays – the identification and
nurturing of the innovative businesses of the future. This formal
and direct relationship is usually three-fold: by making a
financial investment in return for an equity stake in the
business; by offering debt finance to fund growth activities for
an agreed return; by offering non-financial support for an
agreed return, such as providing access to established
marketing or distribution channels, or knowledge transfer. It is
important that the corporation’s aims are aligned with those of
the business.

Find out more through the BVCA (British Private Equity &
Venture Capital Association), bvca.co.uk, as well as its
dedicated website on venture capital – venturecentral.co.uk.

33
Helping hand from HMRC

When taking on equity, businesses should make potential

investors aware of four HMRC schemes. These encourage
investment in unlisted growth companies, through a range
of tax reliefs against investment in new shares.

Seed Enterprise Investment Scheme (SEIS)

At the time of the new shares being issued, start-up

companies eligible to receive investment through the SEIS
must:

 employ fewer than 25 full-time equivalents;

 have less than £200,000 of gross assets; and

 not have had any EIS or VCT investment.

Companies can receive a maximum of £150,000 under an

SEIS.

34
Enterprise Investment Scheme (EIS) and Venture
Capital Trust (VCT) Scheme

Businesses eligible to receive investment through the EIS

or VCT schemes must, at the time of the capital raising:

 employ fewer than 250 full-time equivalents, (500 for

‘knowledge-intensive’ companies);

 have less than £15m of gross assets, and no more than

£16m after the capital raising;

 not be listed on a recognised stock exchange, such as

the London Stock Exchange, (but AIM listed companies
are permissible); and

 be carrying on a ‘qualifying’ trade.

Social Investment Tax Relief (SITR)

Social enterprises eligible to receive equity (or with certain

restrictions debt), investment through the SITR scheme
must, at the time of the capital raising: have less than £15m
of gross assets, and no more than £16m after the capital
raising; and

 employ fewer than 500 full-time equivalents;

 have less than £15m of gross assets, and no more than

£16m after the capital raising; and

 not be listed on a recognised stock exchange, such as

the London Stock Exchange, (but AIM listed companies
are permissible).

35
 There are further requirements, which the company or
social enterprise must meet for a continuous period from
the issue of the shares, (or debt if raised through the SIRT
scheme).

Companies can raise a maximum of £5m in any one year,

and £12m in total, from these four schemes, (or £20m for
‘knowledge-intensive’ businesses).

For full details of the latest range of tax reliefs visit

hmrc.gov.uk.

Private equity

PE makes medium- to long-term investments in, or offers

growth capital to, companies with high-growth potential. PE
investors would usually improve the profitability of the business
through operational improvements and aim to grow revenue
through investment in product lines or new services, or
expansion into new territories. They will also typically introduce
corporate disciplines and a management structure to the
business, to give it a platform on which it can grow further. The
PE model of governance consists of the combination of
strategic, financial and operational expertise. The provision of
non-financial support includes facilitating access to established
marketing or distribution channels. PE investors would actively
manage their investment through a period of five to seven
years on average. After this they would exit their investment,
selling their shares, having seen the value of the invested
company grow. A PE firm may sell their stake to another PE
firm or a corporate trade buyer. Alternatively, it may publicly list
the company.

36
Equitable questions for an equitable outcome

Before seeking equity finance, consider these five

questions:

1. How much is required?

2. What is it for?

3. How long will the funds be needed for?

4. What other skills does the business need?

5. What level of control do existing shareholders want to

retain?

The answers can be incorporated in a comprehensive

business plan, which should incorporate realistic financial
projections, a detailed marketing plan and, crucially, what
the investor can expect in return.

Networking and making use of any suitable contacts is

critical to finding appropriate potential investors. Many
corporate finance advisers will have networks of contacts in
the business angel, VC and PE communities. Engaging an
adviser can help the process.

Many private investors focus on specific industry sectors or

geographical areas. The following associations may help
you to track down investors, networks or networking
opportunities:

 the UK Business Angels Association – see

ukbusinessangelsassociation.org.uk;

 the BVCA – see bvca.co.uk; and

37
  Invest Europe (formerly the European Private Equity
and Venture Capital Association (EVCA)) – see
investeurope.eu.

Equity crowdfunding

The use of equity crowdfunding by companies looking to raise

equity finance is becoming increasingly common. In effect it is a
means to connect companies with potentially hundreds of
thousands of potential investors, some of whom may also be
current or future customers. It does this by matching companies
with would-be angels via an internet-based platform.

Raising equity finance through crowdfunding platforms can be

an alternative to seeking angel or VC finance through more
traditional routes – for start-up, early-stage and growth
companies.

Before putting a pitch for equity investment on a crowdfunding

platform, you would need to show that your business is
investment-ready. As with attracting traditional angel or VC
investment, you would need to produce a business plan and
financial forecasts. A business might also include a video
summarising the opportunity.

The fees payable for raising equity finance on the crowdfunding

platform will typically be a success fee and legal fees related to
the issue. You may incur additional legal and advisory fees in
the preparation of the pitch. Limited due diligence is usually
carried out by the platform and the investor may have the
option to ask for more information. Although the investment will

38
be listed on the platform, investors will not be advised to invest
in a particular equity offering.

The three main models are:

 pure crowdfunding, where every investor is equal and every

one becomes a direct shareholder;

 angel-led crowdfunding: where one experienced investor

leads the round, negotiating the terms and due diligence,
and the crowd follow; and

 crowdfunding with a nominee structure, where the platform

plays an ongoing role representing their crowd investors’
interests by appointing a single nominee.

Equity crowdfund raisings can be eligible for SEIS or EIS relief

(see box on pages 32-33).

Equity crowdfunding is regulated by the Financial Conduct

Authority (FCA).

Some crowdfunding platforms offer both equity and debt

finance.

Find out more on the UK Crowdfunding Association website,

ukcfa.org.uk.

The British Business Bank is encouraging diversity and

competition in equity investment markets for smaller UK
businesses by committing capital to investment funds. It
does this through the following funds.

39
 Enterprise Capital Funds are commercially-focused funds
that bring together private and public money to make equity
investments in high-growth businesses. The investment
encourages venture capital funds to operate in a part of the
market where smaller businesses are not able to access
the growth capital they need.

The Venture Capital Catalyst Fund invests in

commercially viable venture capital funds that might
otherwise fail to reach a satisfactory ‘first close’.

The UK Innovation Investment Fund (UKIIF) supports the

creation of viable investment funds targeting UK high-
growth technology-based businesses.

The British Business Bank is also investing alongside

business angels via the Business Angel Co-Investment
Fund (Angel CoFund), which supports businesses with
strong growth potential.

Further information on these and other British Business

Bank solutions can be found at british-business-
bank.co.uk.

Public listing

The next stage of growth for a business may involve applying

for a public listing of its shares.

The UK markets are the London Stock Exchange’s Main

Market, AIM and the ICAP Securities and Derivatives Exchange
(ISDX). Going public is a major milestone in a company’s
journey.

40
The process of listing is time-consuming and involves a range
of advisers, but it is an opportunity for a company to critically
examine itself. The decision to launch an IPO (initial public
offering) or flotation must be based on a realistic assessment of
the business, its management, where it is in the stage of its
development and its prospects.

A listing may be used to raise money to:

 finance growth opportunities;

 finance acquisitions;

 rebalance the balance sheet;

 broaden the company’s shareholder base; or

 provide liquidity at listing or when it comes to trading shares

in the company.

The London Stock Exchange’s Main Market provides

companies with access to Europe’s deepest pool of capital
as well as the key benefits of higher profile and liquidity.

For commercial trading companies, there are three types of

listing on the Main Market. First there is Premium or
Standard Listing. The former has stricter requirements,
such as a 25% free float but both need a three-year trading
record. High-growth businesses that may be ineligible for
Premium Listing can also access capital via the High
Growth Segment, which requires a 10% free float and gives
eligible companies the opportunity to fund their growth
while preparing for an official listing in time.

41
 A listing on the Main Market offers companies:

 access to a robust, real-time share price;

 access to deep pools of capital;

 benchmarking through the FTSE UK Index Series; and

 high profile through media coverage, investment

research and announcements.

Find out more at londonstockexchange.com.

In addition, a public listing will increase the profile of the

company with a wide range of stakeholders, including
customers, suppliers and peers, and allow it to incentivise key
employees through share option plans more easily.

If your business has a trading track record and further growth

plans, it would be in a position to raise equity capital through an
IPO (flotation). A proportion of its shares would then be listed
on a stock exchange and traded in the secondary market. An
IPO is the sale of shares to institutional and larger investors
and, sometimes, the general public.

The run-up to a company seeking a listing can be broadly

divided into two phases – pre-IPO preparation and the IPO
process itself. Pre-IPO preparation includes the critical review
of a company’s business plan and growth prospects, assessing
the management team, appointing an appropriate board,
tightening internal controls, improving operational efficiency and
resolving issues that may adversely affect the listing early on.

A company should bear the following in mind.

42
 The management team will need to be able to explain the
business, its strategy and prospects clearly to investors, and
demonstrate knowledge of the market as well as its
challenges.

 A comprehensive business plan will be needed, which will

set out the products, markets, competitive environment,
strategy, capabilities and growth objectives.

 The company’s financial performance should preferably be

one of consistent top- and bottom-line growth, with a sound
balance sheet post-IPO.

 A financial model should demonstrate clearly the company’s

growth prospects and associated risks to give investors
confidence.

 If the company is raising new capital, the use of proceeds

should be clearly articulated and in line with strategy.

 Proper financial controls need to be in place.

 A publicly-listed company will need to clearly articulate its

corporate governance arrangements to demonstrate it has a
board capable of running a public company.

The IPO is a step in a company’s growth cycle and the start of

its life as a public company, which will make certain ongoing
demands on the business. Financial statements must be
produced and corporate governance codes adopted to provide
a framework for long-term engagement with shareholders.
Quoted companies are subject to shareholder monitoring, as
their shareholder base is likely to change more often, and there
is always the possibility of a change of control. Generally, the
actions of the company will come under far greater scrutiny, as
one would expect when its shareholder base is spread wider
and the public can potentially own shares in it. For many

43
management teams this may be viewed as preferable to having
a smaller number of more dominant private shareholders.

Investor relations (IR) activity is the term used to describe the

ongoing communication a company would have to undertake
with the investment community. It is a mix of regulatory and
voluntary activities and is essentially part of the public life that
sees listed companies interact and raise their profile with
existing and potential shareholders, analysts and journalists,
customers and suppliers, and disclose information on new
developments. IR activity requires a planned and strategic
approach.

Once on market, the company will have access to further equity

capital, through a further issue or placing, should it need
additional finance on its journey.

AIM is London Stock Exchange’s market for smaller

growing companies. AIM has less prescriptive eligibility and
ongoing requirements than the Main Market and enables
earlier stage businesses, including those with angel and
venture capital backing, to benefit from a flotation on a
public market. It provides a global platform for these
businesses to raise their profile and gain access to
permanent capital.

44
ISDX is a London-based stock exchange providing UK and
international companies with access to European capital
through a range of fully-listed and growth markets.

The ISDX Growth Market is a source of equity finance for

small- and mid-cap companies coming to a public market
for the first time, as well as for existing issuers to raise
further funds. Its admission process and ongoing regulation
are designed to meet the needs of smaller companies.

The ISDX Main Board is an EU Regulated Market serving

the needs of companies and other issuers seeking cost-
effective admission to trading through the UKLA’s Official
List or other European Competent Authority.

isdx.com

45
Know your options: Debt finance
Just as short-term capital should not be used to fund long-term
plans, so the reverse is true. On the financing journey it is
highly likely that you will need both, and the task is to get the
mix right. Debt will undoubtedly be involved in growing a
business. Debt comes in many different forms, each of which
can be more or less appropriate to the type of business, the
stage it is at in its development or the plans it has to grow. And
often an established company will use a blend of different debt
products from a range of providers.

Debt can be used for longer-term investment and/or to fund

working capital. For the former, a loan, leasing arrangement or
bond can be more appropriate and for the latter, some form of
overdraft or asset-based finance (ABF) is likely to be more
appropriate. At any stage of its development a business is likely
to need a mix of different forms of debt. All have their
advantages for different aspects of a business’s growth plans.

Debt, in its simplest terms, is an arrangement between

borrower and lender. A capital sum is borrowed from the lender
on the condition that the amount borrowed is paid back in full
either at a later date (a bullet repayment), multiple dates, or
over a period of time. Interest is accrued on the debt and the
business’s repayment usually has an element of capital
repayment and interest.

Unlike equity, debt does not involve relinquishing any share in

ownership or control of a business. However, a lender is far
less likely to help a business hone its strategy than a business
angel or VC investor.

There are three broad categories of debt:

46
 loans and overdrafts;

 finance secured on assets; and

 fixed-income debt securities.

Loans from banks or other lending institutions primarily take the

form of overdrafts or fixed-term loans. There are also peer-to-
peer (P2P) business loans and start-up loans.

Finance secured on assets includes debt instruments such as

asset finance (leasing or hire purchase) and ABF (invoice
discounting, factoring, asset based lending (ABL) and supply
chain finance). These are provided by most banks and
specialist asset finance and ABF companies including some
online platforms.

Fixed-income debt securities take the form of bonds or mini-

bonds.

Credit unions are cooperatives that can offer loans to their

members. Find out more at abcul.org/home. There are also
community development finance institutions which provide
micro-finance loans to start-ups and individuals as well as
established enterprises. For further information visit
findingfinance.org.uk.

What is most appropriate depends on the purpose of the capital

being borrowed, the credit record of the borrower, the amount,
the repayment term and the interest that is being repaid. You
can see what is available from different providers at
betterbusinessfinance.co.uk.

47
Overdrafts and bank loans

Overdrafts are often what a business uses to help finance

working capital and to meet short-term requirements. Loans,
leasing or hire purchase agreements are in most cases better
suited to larger longer-term purchases, such as investment in
plant and machinery, computers or transport.

While it is almost always the case that an entrepreneur will

benefit from the knowledge, insight and network of advisers
who deal day-to-day with banks and other finance providers,
businesses themselves should cultivate relationships with
banks and other finance providers, who may help meet future
financing requirements rather than just the immediate needs.

To obtain a loan or overdraft, management must demonstrate

to the lender that the business will generate the income and
cash to both repay the facility according to the terms of the
loan, and service the loan by meeting interest payments.
Market conditions and regulatory requirements, such as those
that mandate responsible lending to viable businesses, may
also impact the ease with which a business can access a loan
or overdraft.

It is likely that the business will need to provide security for any
money borrowed against other personal or business assets. A
lender may be able to access the Enterprise Finance
Guarantee programme (see box on page 55).

Debt funds

Increasingly debt funds are offering to lend directly to

businesses. This has been more targeted at larger businesses
and has arisen in the wake of the financial crisis, as the funds
have stepped in where banks have been forced to reduce the
size of their lending book because of liquidity rules. The loan

48
will typically be indistinguishable from a bank loan in relation to
the terms. Often debt funds will co-lend alongside banks.

Peer-to-peer lending

One major innovation in the supply of debt to business is P2P

business lending. This is where internet-based platforms are
used to match lenders with borrowers. The UK is at the
forefront of innovation in this growing form of alternative online
finance.

P2P business lending is a direct alternative to a bank loan. It

can often be more quickly arranged and it allows partners,
customers and friends and family who invest through the
platform to share in the returns of the business. Investors can
lend small parts of individual loans, for very small amounts,
which encourages a wide range of lenders to participate across
multiple loans. P2P business loan sizes range from a few
thousand pounds up to several million with the upper threshold
increasing as the industry grows.

Platforms have set criteria to define which businesses can

borrow through the platform. They usually require borrowers to
have a trading track record, to submit financial accounts, and
they perform credit checks as part of the credit assessment.
Platforms offer either a fixed rate or, in some cases, lenders bid
for loans by offering an interest rate at which they would lend.
In this instance, borrowers accept loan offers at the lowest
interest rate.

The FCA regulates P2P lending. P2P loans have been eligible
to be held in Innovative Finance Individual Savings Accounts
(IF ISAs) as of 6 April 2016.

Further information can be found on the Peer-to-Peer Finance

Association website, p2pfa.info.

49
Asset finance

Leasing and hire purchase are types of finance used by

businesses to obtain a wide range of assets – everything from
office equipment to vehicles – and could be the perfect solution
if you need new equipment which would otherwise be
unaffordable because of cash-flow constraints.

Because leases and hire-purchase agreements are secured

wholly or largely on the asset being financed, the need for
additional collateral is much reduced. There is more security for
the user because the finance cannot be recalled during the life
of the agreement, provided the business keeps up with
payments.

A leasing company buys and owns the equipment, which the

business then rents for a predetermined period. The business
also has the option to replace or update the equipment at the
end of the lease period. Typically, the lease will have a set
interest rate, which fixes the outgoings on that asset.

If a business wants to own the equipment at the end of the

agreement, but avoid the cash flow impact of buying outright,
then hire purchase is an option. A finance company buys the
equipment and the business repays the cash price plus interest
through regular repayments. These agreements are also
normally at fixed interest rates. At the end of the agreement
there is usually a nominal fee to acquire title to the equipment.

The accounting treatment of leases and hire purchase

agreements are different. A chartered accountant will be able to
advise on this.

Leasing and hire purchase are available directly from specialist

providers, or indirectly through equipment suppliers or finance
brokers.

50
Most of the firms providing asset finance in the UK are
members of the Finance & Leasing Association (FLA) and all
their agreements would be subject to the stringent standards
set out in the FLA’s Business Code of Conduct. Find out more
at fla.org.uk/asset.

Asset-based finance

ABF is a collective term used to describe invoice finance (IF)

and asset-based lending (ABL). IF includes factoring and
invoice discounting, which will both involve funding provided
against outstanding debts.

IF can be used to support cash flow and release funding for

investment by generating money against unpaid invoices. IF is
available to businesses that sell products or services on credit
to other businesses. The funding provided tracks the growth in
the business – increasing turnover unlocks more funding.

Single invoice finance, where finance is raised against

individual invoices, rather than turnover in total, is also
available but is generally more expensive. P2P invoice finance
platforms, which serve a broker function, are also increasingly
playing a role in providing invoice financing.

 Factoring involves provision of finance through the

purchase of invoices by the financier (the factor),
representing the debts owed to the business. The factor will
advance the majority of the value of the invoices on
notification with the balance of the value made available
once invoices are paid by the debtors. The factor works on
behalf of the business – managing the sales ledger and
collecting money owed by customers.

 In effect, factoring combines the provision of finance with a

service element, helping the business with credit control,

51
 which can be particularly valuable for smaller businesses.
Export factoring is also available to support businesses
selling internationally.

 Factoring can be provided on a recourse or non-recourse

basis. The latter incorporates protection for the business
against bad debts.

 Invoice discounting is similar to factoring, however, the

business retains control over the administration of the sales
ledger. An invoice discounter would want to satisfy itself as
to the quality of a business’s sales ledger systems and
procedures. ID can also be used to support exports.

 Supply chain finance (also, reverse factoring) is where

smaller suppliers can take advantage of the credit strength
of their larger customers. Supply chain finance requires the
involvement of the supplier and their customer and up to
100% of the value of invoices can be funded once they have
been approved by the customer, often at more competitive
rates than would otherwise be available. Supply chain
finance can be accessed directly through some larger
organisations and also through a growing number of
alternative providers.

 In the past ABL has been seen as a more sophisticated

product for larger small and medium-sized enterprises
(SMEs) and mid-sized corporates, however it is now
increasingly available for smaller businesses as well. ABL is
usually provided on a similar basis to invoice finance, with
funding being extended against debts, but in an ABL
arrangement this is complemented by finance against a
wider pool of assets, typically including stock, property,
plant, machinery and also potentially intangibles such as
intellectual property or forward income streams. ABL can be
used in mergers and acquisitions, management buyouts and
also turnarounds.

52
 Whereas invoice finance would ordinarily be provided on the
basis of purchase of the debts outstanding, (and so in strict
legal terms it cannot be correctly described as lending), ABL
would normally involve taking additional security over the
assets in question.

 As with any type of finance, it is important to get advice on

the legal, financial and tax implications before entering into
any agreement.

Weighing it up

Advantages of different forms of debt

 The terms can be tailored to suit the precise needs of

the business.

 Repayments are straightforward, so can be simply

planned for and the cash-flow impact budgeted.

 Generally, a loan costs less in interest than an overdraft

over the same term.

 Interest is only paid on the amount of money used in an

overdraft and the facility is only used if required – so
they provide flexibility. Similarly, with invoice finance the
equivalent of interest is only payable on the amount
drawn down.

 There is tax relief on interest payments.

53
 Leasing gives a business access to the equipment they
need without incurring the cash disadvantage of an
outright purchase.

 Leasing is a flexible form of finance for all types of

assets because the loans are secured wholly or largely
on the asset being financed.

 P2P business lending can often be more quickly

arranged than a bank loan.

 A wide range of lenders often participate in a P2P

business loan.

 If businesses can apply online, applications can be

made at any time of day without the need to visit a
branch.

Other considerations

 Lenders will always take into account a potential

borrower’s personal or business credit record when
deciding whether or how much to lend.

 Loans are less flexible than overdrafts – charges could

be payable on funds not used and there may be
penalties for early repayment.

 Being locked into a rigid repayment schedule can prove

problematic if cash flow is seasonal or erratic.

54
  Overdrafts are repayable on demand and so can be
reduced or called in if the finance provider thinks that
the business may be in difficulty. There are likely to be
penalty charges for exceeding an overdraft limit.

 For larger amounts, security against the loan will almost

always be required, as will personal guarantees from
directors or owners.

 If a business is growing, the amount of asset-based

finance will track the growth.

 Care should be taken when setting the repayment terms

for a lease to ensure it is at least as long as the
agreement.

 Interest rates in P2P business lending are often set by

the market on the platform and reflect the level of supply
of business loans.

The majority of providers of asset-based finance in the UK are

members of the Asset Based Finance Association (ABFA).
Businesses that use a member of the ABFA are covered by an
independent Standards Framework; this includes a Code
setting out the standards that can be expected and an
independent Professional Standards Council. In addition, the
majority of client businesses of ABFA members will also have
access to an independent complaints process currently
provided by Ombudsman Services. Further detail about the
Standards Framework is available at: abfa.org.uk/standards.
You can check whether a finance provider is a member of the
ABFA at: abfa.org.uk/members/ memberslist.asp.

55
Merchant cash advances

These are unsecured advances of cash, based upon future

credit and debit card sales. These are repaid via a pre-agreed
percentage of a business’s card transactions. Unlike many
other forms of business funding, company or personal assets
are not required as security. If the cash advance takes longer to
pay off, the originally agreed repayment cost remains the same.

Business Banking Insight (BBI) is an independent

website which looks at how well the UK’s small and
medium-sized businesses are being served by banks and
other finance providers. First commissioned by the
chancellor of the exchequer and now managed by the
Federation of Small Businesses and the British Chambers
of Commerce, the BBI website publicly showcases the
experiences of more than 20,000 businesses. It shows how
they rate their banks and finance providers, across a wide
range of products and services. For more information visit:
businessbankinginsight.co.uk.

Bonds and mini-bonds

Bonds – retail bonds or corporate bonds – are a way for

companies to borrow money from investors in return for regular
interest payments. They have a predetermined ‘maturity’ date
when the bond is redeemed and investors are repaid their
original investment. A lender is tied in until they mature. Bonds
can have an advantage over loans in that the business issuing
the bond can have more control over the specific terms of the
finance.

56
Traditionally, corporate bonds and retail bonds would be traded
on the stock market and really would only be available to larger
companies which have a trading history. However, this is
changing. Recently, crowdfunding platforms have entered the
market, offering a one-stop-shop for raising finance through
bonds. These platforms operate in a similar way to peer-to-peer
lending platforms but offer the flexibility that bonds do, and
generally work with larger amounts of funding (usually £1m
upwards).

Mini-bonds are similar but, crucially, they are not traded on a

stock market and can only be promoted to certain types of
investor. A lender is also tied in until they mature.

The British Business Bank is enabling more effective and

efficient debt finance markets for smaller UK businesses by
providing guarantees on loans and loan portfolios, and by
direct investment to support lending.

The Enterprise Finance Guarantee programme provides

loan guarantees, encouraging lending institutions, including
banks, to lend to viable smaller businesses that would
otherwise be declined for lacking adequate security.

The ENABLE Guarantees programme provides

guarantees on loan portfolios, helping lenders to unlock
more lending to smaller businesses by enabling them to
use their capital more efficiently, freeing up capacity.

The ENABLE Funding programme makes available cost-

effective funding to asset and lease finance providers,
helping them to increase their provision to smaller UK
businesses.

57
 The Help to Grow programme (pilot) works through
partners to address the financing needs of smaller
businesses which are struggling to raise sufficient senior
debt to fund their growth opportunities.

Investment Programmes make commercial investments,

which stimulate at least the same amount of investment
from the private sector, encouraging new lenders into the
market and the growth of smaller alternative lenders, such
as P2P lenders.

The British Business Bank also has oversight of the funding

provided to the Start-Up Loans Company to administer
the programme. Start-up loans help people start their own
business, filling the gap where lenders are less willing to
finance new start- ups. They combine a low-cost loan with
free first class mentoring and support, both pre-start-up and
once the business is up and running.

startuploans.co.uk

Growth finance

Growth capital loans and mezzanine finance (growth finance)

are flexible debt financing that are tailored to the specific risks
in the business, with a repayment plan to match the forecast
cash generation of the business. While they are a form of debt,
both share many of the characteristics of equity. However, they
rank below senior debt.

Both are most appropriate for financing high-growth

businesses, and are typically used to finance the expansion of
existing companies by VC investors – for product
developments, penetration of new markets, infrastructure

58
investments, or for strategic acquisitions. Basically debt capital,
growth finance gives the lender the rights to convert to an
ownership or equity interest in the company if the loan is not
paid back in time and in full.

As they can be structured with low cash coupons they can

reduce the cash burden, so are particularly suited for funding
high growth, where senior debt may be less appropriate.

Export finance

When businesses export, they need to be sure they can afford

to produce the goods and that they will be paid. Export finance
helps mitigate risks such as default or delayed payment.

Manufacturers who import raw materials face other challenges.

Overseas suppliers want to be paid for materials before
shipping, so the need arises for finance to fill the gap between
importing the raw materials and the point at which the finished
product is sold. That’s where export finance comes in.

Export finance covers a wide range of tools, all used by banks

to manage the capital required to allow international trade to
take place as easily and securely as possible. Traditional tools
are as follows.

 Bonds and guarantees – if the seller fails to deliver the

goods or services as described in the contract, the buyer
can ‘call’ the bond or guarantee and thereby receive
financial compensation from the seller’s bank. The types of
bonds and guarantees include tender guarantees, advance
payment guarantees, retention money guarantees,
performance guarantees and customs bonds.

 Letters of credit – these are issued by a bank,

guaranteeing that the buyer’s payment will be received on

59
 time and for the correct amount, assuming the goods (or
services) have been supplied as agreed. If the buyer is
unable to pay any or the entire agreed amount, the bank will
cover the shortfall. The bank also acts on behalf of the buyer
– the holder of the letter of credit – by ensuring that the
supplier will not be paid until the goods have been shipped.

UK Export Finance is the UK’s export credit agency and

government department. It works to ensure that no viable
UK export fails for want of finance or insurance by offering:

 free and independent guidance on sources of export

finance;

 release of working capital with bank guarantees for

credit facilities or contract bonds;

 security of payment with export credit insurance; and

 competitive finance packages for overseas buyers with

buyer credit guarantees or direct loans.

The Export Working Capital Scheme assists UK

exporters in gaining access to working capital finance in
respect of specific export contracts. Find out more or book
a consultation with an export finance adviser:
gov.uk/uk-export-finance.

Trade finance

Funding that assists businesses in purchasing goods, whether

from international or domestic sellers, is termed trade finance. It
is often transactional, with finance only being provided for

60
specific shipments of goods and for specific periods of time.
Here the asset being funded against is the goods themselves
(as opposed to invoices in IF) and until repaid by the client, the
goods belong to the finance provider. The process is supported
by letters of credit, bills of exchange and bank guarantees.

‘On a journey of a hundred miles, ninety is but half

way.’ – Chinese proverb

61
Invest in advice
Corporate finance advice along the business journey is critical.
Remember that it is advice and that good independent advice is
invaluable. Advisers have experience of many businesses,
whereas entrepreneurs may just have experience of the one
they are in.

Government sources of information

greatbusiness.gov.uk links to key sources of advice for

businesses looking to grow, export and recruit.

gov.uk/business provides advice on starting, running, growing

and financing a business, with an accompanying helpline
available on:

 telephone: 0300 456 3565

 textphone: +44 (0)20 8742 8620.

gov.uk/business-finance-support-finder provides details on

publicly supported finance, advice schemes, grants and loans.

The government’s Intellectual Property Office offers

comprehensive guidance on using intellectual property to raise
finance in its ‘IP Finance Toolkit’, which can be found at
gov.uk/government/organisations/intellectual-property-
office.

62
Business mentoring

Investment readiness may be the goal, but before a robust

business plan can be prepared, the business may need access
to knowledge and information so it can make the right finance
choices.

Business mentors have both practical experience and a

network of contacts to help businesses make the right choices.
A mentor acts as an independent sounding board for ideas,
provides guidance and support from a different perspective,
and directs the business to the right areas for appropriate help.

The Enterprise Europe Network helps SMEs make the

most of business opportunities in the EU and beyond. Its
many services are offered free of charge by 600 member
organisations, including chambers of commerce and
industry, technology centres, universities and development
agencies.

een.ec.europa.eu

63
Innovate UK is the UK’s innovation agency, and provides
networking collaboration and funding opportunities,
business-led innovation and R&D.

Innovate UK’s Smart funding scheme provides grants for

start-ups and SMEs to help them develop their innovations
– from proof-of-market through to proof-of-concept and on
to prototype development. It provides grants of up to
£250,000 per project.

You can find out more at: interact.innovateuk.org.

Innovate UK’s Knowledge Transfer Network (KTN) brings

together businesses, entrepreneurs, academics and
investors to network, collaborate and share information and
ideas about innovative new products, processes and
services. The KTN’s teams cover all significant sectors of
the economy, from defence and aerospace to the creative
industries, the built environment to biotechnology and
robotics.

You can find out more at: ktn-uk.co.uk.

mentorsme.co.uk is an internet-based mentoring gateway

linking UK businesses who are looking for a mentor with
over 27,000 mentors. The British Bankers Association
manages the portal, working with its mentoring partners
and more than 1,000 volunteer bank mentors offering
expertise in financial support. All mentors can be accessed
through the website.

64
 For businesses in the arts, cultural and creative sector that
are seeking funding and investment, the ICAEW has
published Creative Industries – Routes to Finance, with
52 organisations.

icaew.com/creativeindustries

ELITE is a London Stock Exchange programme and

platform which facilitates engagement between private
growth businesses, corporate advisers, investors and
business leaders. The 18-month programme helps
businesses with organisational review and change;
executing the planned change; and accessing new
business opportunities and funding. To be eligible for
application, companies must: generate at least £5m in
revenues; be able to demonstrate growth prospects; and
require external investment.

For further information visit:

londonstockexchange.com/elite.

Business coaching

Coaching can help a business produce its business strategy

and financial plan. Presentation training is extremely useful in
helping management present the company and their plans in
the best possible light. It prepares them for the rigorous scrutiny
of those plans by potential lenders or investors. At this stage an
adviser would be comfortable introducing the company to a
network of investors or lenders. Many independent advisory
firms offer mentoring services.

65
Accelerators and incubators

There are now many business accelerators across the UK,

which can be a valuable resource for start-ups. There are many
different types of accelerator, often supported by the EU,
national or local government, academic organisations and large
businesses.

An accelerator provides advice, mentoring, practical and

technical support to groups of new ventures often in return for a
small equity stake in the business. Some accelerators will also
invest equity capital or convertible loans. Others may take an
option to acquire an equity stake at a later date.

Incubators are similar to accelerators – and mainly work in the

science and technology sectors. These are ‘co-working’
spaces, where early-stage businesses are given guidance
when developing concepts into commercial projects, whether
they have been independently developed or spun out of
academic, government or commercial organisations.

66
ICAEW’s Business Advice Service offers help to
businesses in England, Scotland and Wales to overcome
the challenges they face, including:

 how to grow a business;

 securing loans, capital and finance;

 keeping staff and creating new jobs;

 meeting tax and regulatory requirements;

 export planning;

 planning for long-term sustainable growth;

 debt management; and

 legal issues.

Businesses are offered a free advice session with an

ICAEW Chartered Accountant. Visit
businessadviceservice.com to find the nearest office
participating in the scheme.

icaew.com

67
 Business growth hubs

Growth hubs are public/private sector partnerships under

the governance of the Local Enterprise Partnership (LEP).
They bring together public and private sector partners to
promote, coordinate and deliver business support. They
provide a mechanism for integrating national and local
business support, so it is easy for businesses to access.

Growth hubs aim to make it easier for businesses to start

and grow, by ensuring business support is:

 simpler – providing a single local access point for all

public and private sector business support;

 more joined up – local support is aligned with national

programmes to improve coordination and reduce
duplication of business support; and

 easier to access – through promotion of business

support locally, assessing business’s needs, then
connecting them with appropriate support; as well as
enabling contact with other businesses for advice,
support and mentoring. There are currently 39 growth
hubs (one in each LEP area).

For a list of growth hubs visit:

lepnetwork.net/growth-hubs.

Support for businesses in Northern Ireland

Invest NI provides high quality services, finance programmes,

support and expert advice to businesses. In addition, debt and

68
equity support is provided through external FCA-approved fund
managers. Visit investni.com to learn more.

Support for businesses in Scotland

Business Gateway provides a first point of contact for all

publicly funded advice to business and is delivered through the
local authorities. It offers a range of advice and support to new,
established and growing businesses. Visit bgateway.com.

Visit mygov.scot/business for further information.

Businesses can also find out about finance options at

mygov.scot/ways-to-fund-your-business.

Support for businesses in Wales

Business Wales provides support to people starting, running

and growing a business. business.wales.gov.uk

Finance Wales makes commercial investments in SMEs based

in – or willing to relocate to – Wales. Find out more at
financewales.co.uk.

Local support for business across England

The government supports many local initiatives across England

which help smaller businesses grow and access finance. You
can find out what is available in your area by contacting your
nearest Local Enterprise Partnership through the LEP network
website, lepnetwork.net.

69
‘We don’t receive wisdom; we must discover it for
ourselves after a journey that no one can take for
us or spare us.’ – Marcel Proust

70
Find support

Asset Based Finance Association (ABFA)

The ABFA represents the invoice finance and asset-based

lending industry in the UK and the Republic of Ireland. ABFA
members include bank and non-bank finance providers, and
the industry specialises in supporting businesses in the real
economy. The ABFA has established a standards framework
for the industry which independently sets and enforces the
standards that can be expected from ABFA members.

abfa.org.uk

British Bankers’ Association (BBA)

The BBA is the UK’s leading association for the banking sector,
representing the interests of more than 240 member
organisations of all shapes and sizes, including retail banks,
wholesale institutions, challenger banks and private banks, with
a worldwide presence in 180 countries.

Better Business Finance is managed by the BBA in

collaboration with its business and finance partners. It provides
impartial information and support to business and
entrepreneurs looking to develop and grow, whether the
business is seeking finance, starting out or exporting abroad.

bba.org.uk betterbusinessfinance.co.uk mentorsme.co.uk

71
British Chambers of Commerce (BCC)

The BCC sits at the heart of a network of 52 accredited

Chambers of Commerce across the UK, and a global business
network. In the UK it brings together over 70,000 member
businesses, and engages with a further 200,000 non-member
companies each year. Overseas, its Global Business Network
offers practical, on-the-ground help to UK exporters, and
supports two-way trade.

britishchambers.org.uk

BVCA

The BVCA is the industry body and public policy advocate for
the private equity and venture capital industry in the UK. Its
membership comprises more than 600 influential firms,
including over 250 private equity and venture capital houses, as
well as institutional investors, professional advisers and service
providers.

bvca.co.uk

CBI

The CBI is the UK’s leading business lobbying organisation,

providing a voice for employers at a national and international
level.

cbi.org.uk

Chartered Institute of Credit Management (CICM)

The CICM is Europe’s largest credit management organisation,

and the second largest globally. The trusted leader in expertise

72
for all credit matters, it represents the profession across trade,
consumer and export credit, and all credit-related services.
Formed more than 70 years ago, it is the only such
organisation accredited by Ofqual and it offers a
comprehensive range of services and bespoke solutions for the
credit professional as well as services and advice for the wider
business community, including the acclaimed CICM/BIS
Managing Cashflow Guides.

cicm.com

EEF

EEF is the manufacturers’ organisation, helping thousands of

companies to evolve, innovate and compete in a fast-changing
world. It has a unique combination of business services,
government representation and industry intelligence, and
provides skills, knowledge and networks to enable companies
to thrive.

eef.org.uk

Enterprise Nation

Founded by Emma Jones MBE in 2005, Enterprise Nation is a

small business network with a community of more than 75,000
entrepreneurs, experts and business owners. Its aim is to help
people turn their good ideas into great businesses. Members
benefit from: a programme of 200+ online and offline events
per year; access to expert advice; the latest small business
news; a library of resources; and a strong and respected
campaigning voice on the subjects that matter, from digital
skills to exporting.

enterprisenation.com

73
Federation of Small Businesses (FSB)

The FSB is the UK’s largest campaigning pressure group,

promoting and protecting the interests of the self-employed and
owners of small firms.

fsb.org.uk

Finance & Leasing Association (FLA)

The FLA is the leading trade association for the asset,

consumer and motor finance sectors in the UK, and the largest
organisation of its kind in Europe. Its members include banks,
subsidiaries of banks and building societies, finance arms of
leading retail manufacturing companies and a range of
independent firms.

fla.org.uk

‘Good company in a journey makes the way seem

shorter.’ – Izaak Walton

Forum of Private Business

The forum is a not-for-profit membership organisation, which

offers a one-stop-shop business support service, focused on
the growth and profitability of small businesses.

fpb.org

74
Innovate UK

Innovate UK is the UK’s innovation agency, and provides

networking, collaboration and funding opportunities, business-
led innovation and R&D.

interact.innovateuk.org

Institute of Directors (IoD)

The IoD has been supporting businesses and the people who
run them since 1903. As the UK’s longest-running organisation
for professional leaders, it is dedicated to supporting its
members, encouraging entrepreneurial activity and promoting
responsible business practice for the benefit of the business
community and society as a whole.

iod.com

London Stock Exchange

The London Stock Exchange Group is the largest stock

exchange in Europe and the fourth largest in the world. It
operates a range of equity and bond markets including AIM, the
Main Market and Order Book for Retail Bonds (ORB). It also
operates ELITE, a business support and education programme
for high-growth private companies.

londonstockexchange.com

National Enterprise Network

National Enterprise Network is a unique membership body

representing those working in the enterprise support sector
across England. Its members provide a wide array of support to

75
new and established businesses, offering impartial and
independent information, advice, training and other services
including loan funding, managed workspace and incubation
facilities. National Enterprise Network’s online directory has
been specifically devised to help people looking for core
support in starting up, to put them in touch with support
organisations located nearby.

nationalenterprisenetwork.org/findbusinesssupport

Peer-to-Peer Finance Association (P2PFA)

The P2PFA is the industry association representing debt-based

alternative finance providers operating through electronic
platforms.

p2pfa.info

Quoted Companies Alliance (QCA)

The QCA is the independent membership organisation

representing the interests of small- to medium-sized quoted
companies.

theqca.com

Responsible Finance

Responsible Finance providers offer micro-finance loans to

start-ups and individuals as well as established enterprises.
They provide access to fair, affordable finance to people and
businesses, usually taking the form of loans. Responsible
Finance providers tailor their services locally to the needs of
those often excluded. They offer a personal service, a
supportive approach and a real alternative to traditional bank

76
lenders and finance providers. Their finance creates jobs,
boosts enterprise and fuels growth. Responsible Finance
providers aim to build hope, create opportunity and change
lives. They are driven by a mission to bring social and
economic benefits to people and places.

findingfinance.org.uk

UK Business Angels Association

The UK Business Angels Association is the national trade

association representing angel and early- stage investment in
the UK.

ukbusinessangelsassociation.org.uk

UK Crowdfunding Association (UKCFA)

The UKCFA is the largest trade organisation representing more

than 40 equity, debt and rewards based crowdfunding platforms
in the UK. It promotes all forms of crowdfunding as
an alternative source of funding for a business, at whatever
stage of development, and has published its own code of
practice.

ukcfa.org.uk

UK Export Finance

The UK’s export credit agency. Provides finance and insurance

in support of companies selling overseas.

gov.uk/uk-export-finance

77
The British Business Bank
The British Business Bank is a government-owned financial
institution set up to support economic growth by making finance
markets work better for smaller businesses in the UK.

It uses funding and guarantees backed by the government to

bring more private sector resources into small business lending
and investment.

Smaller businesses don’t obtain finance directly from the British

Business Bank – it makes its impact from generating more
activity by the private sector. The British Business Bank is
seeking to increase both the level and diversity of funding
options available to smaller businesses in the UK.

It aims to leverage in private sector capital to create £10bn of

funds for UK businesses by the end of March 2019.

What does it do?

The British Business Bank provides finance and applies

guarantees through commercial lenders and investors, who use
these financial resources – together with their own money – to
lend to or invest in smaller UK businesses.

It operates right across finance markets, from supporting early-

stage equity funding, through the provision of growth capital, to
senior debt for established SMEs, and will share in any returns
on investments made. It then recycles these back into further
lending and investment.

78
Its commercial arm, British Business Bank Investments Ltd
(bbbinv.co.uk), aims to earn a commercial return by investing
debt and equity into providers of finance to smaller businesses
and small mid-caps on a fully commercial basis, without
receiving any advantage from the government.

The British Business Bank supports smaller UK businesses in

three broad areas.

 Start-up – mentoring and funds to ‘be your own boss’.

 Scale-up – finance for businesses growing quickly or those

with the potential to do so.

 Stay ahead – more funding options and greater choice of

providers for expansion and working capital.

Find out more at british-business-bank.co.uk.

79
HOW WE OPERATE

SOLUTIONS MONEY
Designed to make finance £3bn+ of public funding
markets for small businesses commitments
work better

Working with finance market providers

Start-up Business Asset Trade High Challenger

funding angels finance credit street banks
PRIVATE providers providers providers banks PRIVATE
SECTOR SECTOR
MONEY Venture Peer-to- Invoice Supply-chain finance Debt funds MONEY
capital peer discountin providers
funds lenders g

80
START UP SCALE UP STAY AHEAD
Mentoring and funds Funds for high growth potential More funding options and choice
to ‘be your own boss’ businesses of provider

Start Up Loans Angel Co Fund Investment Programme

Providing loans and Matching equity investment in Supporting a greater range of
mentoring support to smaller businesses from business funding for smaller businesses.
help entrepreneurs to angels.
start a business. Enable
Venture Capital Solutions Funding and capital products to
Supporting a vibrant and diverse helpincrease the flow of finance.
venture capital market for early
stage and high-growth businesses. Enterprise Finance Guarantee
Encourages financial institutions
Help to Grow Programme to lend to viable smaller
Allows fast-growing firms to reach businesses lacking collateral or
their potential. It includes debt track record.
finance with equity elements or,
more simply, junior debt.

81
Northern Powerhouse Investment Fund and Midlands Engine Investment Fund

Finance platforms and credit reference agencies

RESULTING IN INCREASED BUSINESS INVESTMENT, GROWTH AND JOBS

82
About the authors

Marc Mullen

Marc is an ICAEW Chartered Accountant who trained with

PwC. He is a freelance journalist and editor of ‘Corporate
Financier’, the magazine of ICAEW’s Corporate Finance
Faculty.
T +44 (0)7930 847 544
E [email protected]

David Petrie, Head of Corporate Finance, ICAEW

David is responsible for the leadership and strategic

development of all ICAEW activities in corporate finance. He
has advised on numerous finance-raising transactions – from
small MBOs to large, complex outsourcing arrangements, both
in the UK and internationally. He remains actively involved with
a number of small and medium-sized companies.
T +44 (0)20 7920 8796
E [email protected]

Thanks

We would like to thank the following individuals for their

contributions to THE BUSINESS FINANCE GUIDE,
new edition.

Tom Allchorne
Director of Communications, BVCA

83
Toby Bateman
Policy Advisor, Financial Services, CBI

Shaun Beaney
Manager, Corporate Finance Faculty, ICAEW

Puja Bhattacharjee
Business Finance Policy Advisory, BBA

Ian Cass
Managing Director, FPB

Mike Cherry
National Policy Chairman, FSB

Clare Cochrane
Head of Brand, ICAEW

Mike Conroy
Executive Director, Corporate and Commercial Banking, BBA

Graham Dale
Head of Public Affairs, ICAEW

Matthew Davies
Director of Policy and Communications, ABFA

Bruce Davis
Director, UK Crowdfunding Association

Christine Farnish
CBE Chair, P2PFA

Sean Feast
Managing Editor, Credit Management

84
Graeme Fisher
Managing Director Policy, Communications and Marketing,
British Business Bank

Simon Goldie
Head of Asset Finance, FLA

Julia Groves
Chair, UK Crowdfunding Association

Theodora Hadjimichael
Policy and Research Manager, Responsible Finance

Sarah Hallett
Content Designer, ICAEW

Tim Hames
Chief Executive, BVCA

Robert Hodgkinson
Executive Director, Technical, ICAEW

Michael Izza
Chief Executive, ICAEW

Katerina Joannou
Manager, Capital Markets Policy, ICAEW

Emma Jones
Founder, Enterprise Nation

Philip King
Chief Executive, CICM

Andrea Kinnear
Head of Communications, FLA

85
Clive Lewis
Head of Enterprise, ICAEW

Laurence Lily
Communications Manager UK Export Finance

Alexis Liming
Chief Operating Officer, Enterprise Nation

Jeff Longhurst
Chief Executive Officer, ABFA

Paul Massey
Director, UK Crowdfunding Association

Adam Marshall
Acting Director General, BCC

Michael Martins
Economic Analyst, IOD

Keith Morgan
Chief Executive, British Business Bank

Sharna Neil
Brand Executive, ICAEW

George Nikolaidis
Senior Economist, EEF

Robert Pettigrew
Policy Director, P2PFA

Samantha Ridler
Manager, P2PFA

Sarah-Jayne Russell
Content Manager, ICAEW

86
Scott Shearer
Communications and Marketing, British Business Bank

Rebecca Simon
Marketing and Communications Director, British Business Bank

Marcus Stuttard
Head of Primary Markets, London Stock Exchange

Jenny Tooth OBE

Chief Executive, UKBAA

Nick Toyas
Toyas O’Mara

Tim Ward
Chief Executive, QCA

Dawn Whiteley
Chief Executive, National Enterprise Network

Mark Young
Brand & Marketing Manager, Innovate UK

Veronica Zabrini
Operations Executive, Faculties, ICAEW

We are also grateful for the support from the various

committees within the organisations that have endorsed
THE BUSINESS FINANCE GUIDE, new edition.

87
Continue the journey online

Whether you are looking for start-up finance, growing a

business or seeking to expand into new markets, our interactive
tool, developed with the help of our expert partners, will guide
you through every stage of the financing journey.

thebusinessfinanceguide.co.uk

88
The British Business Bank

The British Business Bank aims to ensure that finance markets

for small and medium-sized businesses work effectively,
allowing such businesses to prosper, grow and build UK
economic activity.

The British Business Bank brings expertise and government

money to smaller business finance markets. Using research to
understand these markets and smaller businesses’ finance
needs enables the bank to design its programmes. It
maximises its impact by investing alongside the private sector
and working through a range of more than 80 established or
newly emerging finance market providers such as banks,
leasing companies, venture capital funds and web-based
platforms.

In addition to finance, the British Business Bank uses

guarantees to share risk with the private sector and so create
stronger incentives for lenders to extend credit to smaller or
growing companies. Its programmes bring benefits to smaller
businesses that are start-ups, high growth, or simply viable but
underfunded.

ICAEW Corporate Finance Faculty

The faculty’s professional network includes more than 80

member organisations and 7,000 members drawn from major
professional services groups, specialist advisory firms,
companies, banks, private equity, venture capital, law firms,
brokers, consultants, policymakers and academic experts.
More than 40% of the membership is from beyond ICAEW.

The faculty is ICAEW’s centre of professional excellence in

corporate finance.

89
It contributes to policy development and public consultations
and provides a wide range of services, events and media to its
members, including its magazine ‘Corporate Financier’.

ICAEW is a professional membership organisation that

promotes, develops and supports over 145,000 chartered
accountants worldwide. We provide qualifications and
professional development, share our knowledge, insight and
technical expertise, and protect the quality and integrity of the
accountancy and finance professions.

As leaders in accountancy, finance and business our members

have the knowledge, skills and commitment to maintain the
highest professional standards and integrity. Together we
contribute to the success of individuals, organisations,
communities and economies around the world.

Because of us, people can do business with confidence.

ICAEW is a founder member of Chartered Accountants

Worldwide and the Global Accounting Alliance.
www.charteredaccountantsworldwide.com
www.globalaccountingalliance.com

ICAEW
Chartered Accountants’ Hall
Moorgate Place London EC2R 6EA UK

T +44 (0)20 7920 8685

E [email protected]
icaew.com/cff

linkedin.com – ICAEW Corporate Finance Faculty

twitter@ICAEW CORP FIN

90
ICAEW 2016 TECPLM16268 05/16

91