Looking for finance part 2?

Last month I wrote about raising finance from your bank.

This month I will cover some government schemes aimed at helping you to raise finance and some alternative forms of finance.

If you are seeking bank funding but don't have the required security a government scheme called Enterprise Finance Guarantee (EFG) may be part of the answer.

At the discretion of the bank, through the EFG, security could be available on 75% of the loan at an additional cost of 2% on the loan interest. In effect the government is actually acting as guarantor for part of the loan. The EFG can be used for new loans, existing loans where refinancing is required and conversion of all or part of an overdraft into a longer term loan. Uses of the funding could be working capital or asset purchases. Go to our website for more information.

There are other sources of loan finance, for instance a number of regional loans:

  • Small Loans for Business: Aimed at the smaller business and operated by Foundation East for short-term or long-term loans from £500 to £50,000. See Foundation East.
  • EEDA's regional growth loan: is for businesses with a turnover of at least £500,000 that has growth potential and a sound growth strategy. This is long-term funding; minimum loans are for £50,000 and maximum £200,000. More details on the EEDA website.
  • EEDA Regional Loan - Transition Finance: for businesses with turnover of at least £1,000,000 this is short-term funding of up to 12-months. Minimum loan £100,000 and maximum £150,000. See: the EEDA regional Loan page for details.

Contact Business Link for advice on these and other loan funding sources not listed in this newsletter.

There are other sources of business finance as alternatives to loans and overdrafts. The common ones include:

  • Asset financing: This basically means either the hire purchase or leasing of business assets. Independent brokers and the high street banks will offer this type of finance.
  • Factoring: is where you would typically hand over the management of the company's debtors to the factor. The factor will pay you up to 90% of each invoice's value and collects the debt from the customer. After collection you will receive the balance less charges. The advantage is that you get paid the majority of the money earlier; there are some disadvantages i.e. it's not cheap and if you have slow paying customers it will cost you more. It can be difficult to break out of this type of funding and of course you are still liable for bad debts.
  • Invoice discounting: is where you would be advanced up to 80% of the invoice value but you retain control of the debtors' ledger and therefore customers pay you as normal. You will pay interest and fees monthly. Go to: this page of our website for a fuller explanation of factoring and invoice discounting.
  • Equity finance: is where a third party invests in the business often working closely with the business and adding valuable skills and expertise to help the business grow. Venture capitalists would normally be looking for investments of minimum £2m or £3m whereas a business angel will look to invest from a few thousands up to a million. Both will take a share of the business and will want to see a good return of their investment. The process is very complex so you will need specialist advice.

Even over the two newsletters that we have covered this subject, we can hardly scratch the surface of raising business finance, as it is a large and often complex subject. In order to cut through the complexity, for businesses looking for at least £10,000, the East of England Development Agency, supported by St John's Innovation Centre in Cambridge and Business Link, has launched 'Understanding Finance for Business', a free programme which is a series of workshops and one-to-one, tailored, advice and support. The aim is to cut through the jargon and explain all the options open to you in seeking business finance. It starts off at a general level but as the process develops the support you get becomes more specific to your own business needs. See this page for more information and booking details.


That's all for this month.

Peter Mulhall
Business Adviser

Business Link - the place to go for business support



business link

I met someone at a networking event recently and we have decided that our companies should work together. Do you think that business co-operation or collaboration is a good idea?

In short: you can't be good at everything, so yes it may well be a good idea.

However, let's look at a few of the things that would be involved.

What opportunities do we want to capitalise on?

You will need to identify an opportunity. This might be submitting a joint bid on a tender, or entering another market sector, or a particularly large customer to target which otherwise you would not have the credibility, skill or the resources to convert into a customer. You may not identify a specific opportunity at the early stage, but all parties should have a purpose for wanting to collaborate.

Choose your partners - but choose wisely!

The choice of collaborative partner is critical. Sometimes the criteria for partner selection are woefully inadequate and more suitable to choosing a golf partner than a business partner. Getting on with business partners is essential, but more is needed.

Taking it on trust

Trust; this is a difficult one as it only truly forms with experience. There will be issues possibly, for some, on intellectual property and the need for confidentiality and confidentiality agreements. But ultimately you will need to trust partners, sometimes with sensitive information about your own business as you proceed to collaborate. Not only that, you will need to trust that the other parties will fulfil their responsibilities on the projects or ventures that you undertake; there will inevitably be division of labour and you are unlikely to be in a position to supervise, hands-on, the things that others are accountable for.

Skills match

One of the big advantages of business collaboration is that you gain access to skills and competencies not available in your own business i.e. the other party excels in areas where you are weak and vice versa. This doesn't happen automatically; drawing up a skills map and skills-auditing each potential partner in order to match skills required with skills available is a crucial part of the preparation stage.

Cultural match

If you, as a sole trader, are wanting to collaborate with other sole traders, understanding the other party's style of doing business, vision, view of the world around them, their values and beliefs and behaviours will be important for effective collaboration.

If you are a larger business with staff and even possibly a management team, how you go about understanding each other's business culture will need a lot of careful thought. Each MD spending time at the other's business getting to know people and processes is a good place to start.

Process matching

This is about how you or your company actually works from end to end. How you sell, market your products & services, communicate internally, & externally, deal with suppliers, customer relationship management; how you actually make the products and provide the service, how you run your admin and finance functions etc. Don't assume that because your own business runs effectively and smoothly that there will be no difficulties when you collaborate with others even if they too have a smooth running business.

Legal & structural aspects

Collaborative agreements or even legal entities may be needed depending on the depth of the relationship and complexity of the work being undertaken. Seek specialist advice.

So yes it is definitely an option to consider...

It is widely accepted that business cooperation / collaboration is a valid strategy for growing a business. There are huge benefits to be had from utilising the synergy of complementary businesses as well as potential economies of scale.

...but don't go into it blindfolded

We have only scratched the surface and looked at a few aspects, but even so it should be clear that some form of due diligence is needed before any decision is made. Good advice is essential for each party separately and, if the idea progresses, possibly a facilitator, either internal, or external to mediate and to project manage the formation and early stages of the partnership or joint-venture.

A sobering thought is that the majority of collaborative business relationships fail. So do your groundwork first, be prepared to put the time and effort into making the partnership work and you stand a chance of being one of those businesses that succeed with collaborative cooperative relationships.

In a nutshell:

  • Identify the business opportunity
  • Choose your partner carefully
  • Spend time getting to know them and their business
  • Take advice
  • Be clear about the risks and benefits

If you think that collaborative co-operative working is a possible strategy for you but you're not sure where to start, talk to one of our business advisers.

That's all for this month.

Peter Mulhall
Business Adviser
tel: 07717 290309

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Business Link - the place to go for business support



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