2015 Finance in the South West Segment 1 - Background, debt and being investment ready
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Finance in the South West 2015 May we live in interesting times… Sharon Austen Partner
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Transcript of 2015 Finance in the South West Segment 1 - Background, debt and being investment ready
Finance in the
South West 2015
May we live in
interesting times…
Sharon Austen
Partner
www.francisclark.co.uk
Administration
Admin
Timetable
Slides – available on request or at http://www.slideshare.net/FrancisClarkLLP
Questions – Please keep questions until coffee/lunch
Presenters…
www.francisclark.co.uk
Presenters and other participants
…and many more
www.francisclark.co.uk
Structure of morning
• Background, Debt and Investment ready (8.30am to 9.50am)
• Key note speaker
• LEP and SME
• Debt and Investment ready (part 1)
• Equity, Grants and Investment ready (part 2) (10.10am to 11.25am)
• An SME perspective, business support and closing address (11.45am to 1pm)
• Q&A one to one / Networking (1pm to 2pm)
www.francisclark.co.uk
Follow us on twitter @francisclarkllp
Tweet about this event using
#FCFinanceSW
www.francisclark.co.uk
Key note speaker
Declan Curry
• Award winning business and
economics broadcaster
• Business presenter for the BBC for
more than a decade
• Broadcast in the United States and
Australia as well as throughout the
UK
www.francisclark.co.uk
Declan Curry
Finance in the South West
2015
Chris Garcia
“Driving growth in the Heart of the SW”
Reposition the Heart of the South West: our prosperity, profile and reputation, nationally and globally. Connecting people, places, businesses and ideas to transform our economy, securing investment in infrastructure and skills to create more jobs and enable more rewarding careers.
Our LEP is working to
What do we do
• Common priorities
• Partnerships
• Attract resources
• Make a difference to prosperity of businesses and employees
Strategy - Our LEP priorities in a nutshellCreating the Conditions for
Growth
Maximising Productivity and
Employment Opportunities
Building on our
Distinctiveness
Pla
ce
Infrastructure for growth:
Transport and accessibility
Digital infrastructure
Sustainable solutions for
flood management
Energy Infrastructure
The infrastructure and facilities
to create more and better
employment:
Enterprise infrastructure
Strategic employment sites
Unlocking housing growth
The infrastructure and facilities
needed to support higher value
growth:
Specialist marine sites
Innovation infrastructure
Our environmental assets
Bu
sin
ess
Creating a favourable business
environment
A simpler, more accessible,
business support system
Achieving more sustainable and
broadly based business growth:
Reaching new markets
Globalisation
Supporting higher value growth:
Innovation through Smart
Specialisation
Building innovation capacity
Peo
ple
Businesses and individuals can
reach their potential:
Skills infrastructure
Accessibility to
education/employment
Employer engagement and
ownership
Increasing employment,
progression and workforce
skills.
Moving people into
employment
Supporting people to
progress to better jobs
Improving workforce skills
Creating a world class workforce
to support higher value growth:
Enterprise and business skills
Technical and higher level
Skills for our
transformational
opportunities.
Achieving our aspirations
Strategy Resources Delivery
Management
Our Aspirations
for Jobs
Growth &
Prosperity
People
Place
Business
Monitoring and Evaluation of Performance
Marketing and Communications
Back office financial accounting, audit, and procurement
Partnership
LA teams
Successes
• GPF finance for stalled infrastructure
• Rural Growth Network initiatives
• Finance for business growth
• Hinkley Growth Deal 14-15
• Growth Deal 1
• Growth Deal 2
Going forwardOur opportunities and challenges
We know what we have to do but our work is dependent on:• Funding (we don’t have revenue; ESIF delays a real problem)• Joined up focus / support from govt to make things happen• Partnership – with intermediaries and business
Our focus is now on DELIVERY- Lots of
contracts going out door for April
How can the LEP help –
Its your LEP
What the LEP is not:
An agency of HMG like the RDA designed to act as a delivery
arm of central gov, nor are we simply a funder body.
What the LEP is:
A genuinely local platform for collaboration across public
and private sectors, to achieve mutual economic aims.
We support:
• Funding bids for national Government – e.g. Growth Deal
Directing European funds to where they’re needed most
• Influencing national Government strategy
• Strategic partnerships – e.g. with neighboring LEPs
We are always keen to hear your priorities
What can we do more of??
heartofswlep.co.uk
Debt – types and
sources an
overview (do not
forget the
Banks…)
Richard Wadman
Corporate Finance Director([email protected])
www.francisclark.co.uk
Banks: net lending v gross lending
Bank of England, Trends in Lending, January 2015
www.francisclark.co.uk
• Total borrowing facilities
£112.8bn
• £7.9bn of new SME
borrowing approved Q3 2014
• A 13% increase on same Q 2013
• and highest amount since 2011
• Borrowing “broadly based”
across geography and
industry sectors (demand
from ME strong)
But banks are not not lending
Source: BBA Bank support for SMEs – 3rd Quarter 2014
www.francisclark.co.uk
• ‘Net lending’ perhaps not the full story
• Cash deposits increasing as debt repaid
• High approval rates
• Lenders are ‘open for business’ (“truly open”)
• Significant variation in approach/process
But banks are not not lending
www.francisclark.co.uk
Rates and Terms
Source: Bank of England
3.00
3.50
4.00
4.50
5.00
5.50Ja
n 20
09
May
200
9
Sep
2009
Jan
2010
May
201
0
Sep
2010
Jan
2011
May
201
1
Sep
2011
Jan
2012
May
201
2
Sep
2012
Jan
2013
May
201
3
Sep
2013
Jan
2014
May
201
4
Sep
2014
(% m
argi
n ov
er b
ase)
SME Lending Rates (BofE)
All SMEs
Small
Medium
www.francisclark.co.uk
Funding For Lending
Banks borrow from Bank of England (using business loans
and mortgages as security)
• Reduces interests rate which Bank borrows at
• The more a Bank lends, the more they can borrow and the
lower the fees on borrowing
• Lower interest rates on Loans (1% discount/ cash back)
• Fees being waived
• Increased competition for ‘good customers’
www.francisclark.co.uk
Enterprise Finance Guarantee Scheme
• Designed for businesses that have been turned down by
lenders due to insufficient security
• Decision making on individual loans is fully delegated to
the participating lenders
• Government guarantees 75%. Borrower pays a 2% per
annum premium
• Lenders entitled to take security, personal guarantees but
prohibited from charge over principal private residence
• Export variant - ExEFG
www.francisclark.co.uk
Regional Growth Fund –
Assisted Asset Purchase
• Funding for purchases of new plant and machinery
• Grant for up to 20% of asset cost for small businesses,
10% for medium
• Criteria apply – job creation/protected, size and location
• Limitations of amount per job apply
• Taxable and state aid considerations
www.francisclark.co.uk
Lending – Alternative sources, including
• CDFI
• New challenger banks
• P2P continues to grow (e.g., P2P business lending up 250%)
• Bonds
• Asset backed (plant & machinery, invoices, stock)
• Many others and ‘new ideas’ – what is appropriate for the situation?
• Capital Market Unions (European Commission project to free up €bn’s
of funding for SMEs)
• Growing Places Fund (example of UK government intervention)
www.francisclark.co.uk
Summary
• Banks/debt lenders are keen – but make them keen for your
business by being properly prepared
• Consider the form and source of funding most appropriate for
your business situation
• Market test your terms and understand if you fit into any
lending ‘schemes’ to save costs
Chris Burt
Fund Manager
SWIG Finance
SWIG Finance
• Who we are
• What we do
• Why we do it
• Alternative funding is nothing new..
“
...a CDFI
“Community Development Finance
Institutions (CDFIs) lend money to businesses
(that) struggle to get finance from high street
banks. They are social enterprises that invest in
customers and communities”
SWIG = the South West’s CDFI
www.swigfinance.co.uk
01872 [email protected]
SWIG Finance
South West wide
Offices in Truro and Bristol
Investment since 2009 – Dec 2014
Percentages = of total lending by value
Who can we support?
• Start Up and existing SMEs
• Investing in growth or efficiency
• Jobs created or safeguarded
• Can’t access sufficient bank finance
Beran Instruments
• North Devon
• 4 loans for growth
between 1999 and
2006 from SWIG
• Grown from 21 staff
members to 130 with
a turnover £9 million
James Lovett
Business Development Manager
A Business Lending Revolution
An introduction to marketplace lending and how it
can help your business grow
What is peer-to-peer lending?
Traditional lending
Peer-to-peer lending
4
A simple model: Lenders can spread risk by lending
small amounts to hundreds of businesses
Business loan
Loan parts
Loan parts
Loan parts
Loan parts
Loan parts
Loan parts
Loan parts
Loan parts
Loan parts
5
The growth of alternative options is creating
healthy competition in the market
6.2
1.1
0
2
4
6
8
Total SME lending by provider
Bank lending Non-bank lending
Estimated 85% of SME lending is through the
five big banks
Source: Project Merlin, Bank of England; Funding Circle analysis; does not include loan secured on property
Bank lending includes lending from the five big banks: Barclays, HSBC, LBG, RBS and Santander
Lending pm, £bn
UK Business peer-to-peer lending (P2B) has
now surpassed £700 million
0
100
200
300
400
500
600
700
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Mill
ions
Other Business p2p lending Funding Circle lending
“71% of SMEs approach
only one provider
of finance”
British Business Bank, 2013
6
A global marketplace needs diversity
40
37k retail lenders
Central government
Local government
Passive institutions
Marketplace
for small
business
loans
Active institutions
Unsecured loans
Secured loans
Depth of lendersBreadth of products
Commercial property
Asset finance
Unsecured Loan
£5k - £200kSuitable for a wide range
of purposes
6 months to 5 year term
Rates from 6% (8.3% avgA+ over 36 months)
Fees between 3-4% of loan amount
No ERP’s
Secured Loan
£150k - £1m
All asset security agreement
Charge on specific properties or assets
Types of borrowing
41
Asset finance
£20k - £1m
Suitable for a wide range of hard assets
Hire purchase
Flexible on LTV–100% considered
Individual deals up to £250k, credit lines of up to £1m
Funding Circle loans can be used for almost
any purpose
Working capital
Buying equipment or assets
Deposits for property purchase
Taking on new staff
General cash-flow
Buying stock
General expansion
Replacing an overdraft
Paying down debt
Refurbishment
Growth – buying a new retail unit
Research and development
Marketing
IT upgrade
42
43
Minimum criteria includes
Limited companies, limited liability partnerships & non limited
Established: trading for 3+ years with at least 2 years of filed
accounts
Directors: A good credit history – no CCJs, CVA, CVL or liquidated
companies within past 6 years. UK resident.
Company: Min turnover £50,000, sufficient P&L strength to service
the additional borrowing. Upward growth trend and no consecutive
losses.
Beneficial ownership in UK
Loan supported by PG
44
How to apply
Apply online or use one of our registered introducers
Application reviewed by our credit team – decisions usually take 48 hrs
1
2
3
4
Your loan lists on our marketplace for up to 7 days for lenders to fund
You accept the loan and we transfer the funds to you
Typ
ica
lly 1
4 d
ays fro
m a
pp
lication to
dra
wd
ow
n
Borrower Case Studies
45
46
47
48
Paul Caunter, Ignition Credit
• Quick turnaround
• No lengthy application process or forms to complete.
• For deal sizes of up to £50k - 80% of decisions provided
within 4 hours & over £50k within 48 hours or less!
• Documentation completed for you & payment to your supplier arranged on your behalf.
Simple Process
Other Advantages
• Annual Investment Allowance of up to £500k available
until 31.12.2015 & other Tax advantages.
• Funding for Lending Scheme – 1% reduction in
published cost of funds (subscribed lenders only).
• Regional Growth Fund “RGF” of up to 20% deposit
contribution towards purchase of business critical assets
(conditions apply).
• “Asset re-finance” - raise working capital against assets
already owned.
• Asset Finance can assist in financing any moveable asset
from Cattle to Caterpillar’s.
• Finance agreements can be tailored to business needs, with
flexibility of terms & repayment schedule.
• Typical finance amounts range from £1k to £1m+
• Security generally taken on the asset alone, depending on
the asset & covenant of borrower.
• Quick & easy to put asset finance in place.
In Summary
Many thanks for your time!
Paul Caunter – 01872247208
www.ignitioncredit.co.uk
www.francisclark.co.uk
Matching requirements
Understand your
requirements
Understand funding
options and funders
requirements
Debt or Equity Risk?
www.francisclark.co.uk
The Readiness Process
• When, why and what funding is needed
• Communicating the business proposition - Business
plan and projections
• Viable plan and credible management
• Building the relationship
www.francisclark.co.uk
Investment ready – housekeeping
• Compliance and Legal
Licences / contracts/ legal title?
IPR ownership in the company?
Statutory Accounts/management
accounts
VAT, PAYE/NI, Books and records in
order?
www.francisclark.co.uk
Requirements: Grants
• “Project” eligibility – sector, size, location…
• Timescale – prescriptive, process and panels, not
retrospective
• Match funding
• ‘Need for grant’ versus viable proposition
• Other factors - Environment, Equality, on going
requirements
www.francisclark.co.uk
Requirements: Debt
• Serviceability & Headroom
• Security / Personal Guarantees
• Conduits for government initiatives
• Covenants – achievable / appropriate?
www.francisclark.co.uk
Requirements: Equity
• Exit route and returns to the investor
• Investors expertise vs. loss of independence?
• Be prepared to discuss valuation
• Be aware of FSMA regulations
www.francisclark.co.uk
Investor Ready - Conclusions
• Appropriate funding / understand the funder
• Sufficient information for a risk assessment
• Know the ‘deal breakers’ – due diligence
• Build in sufficient time
Raising finance
– where do your
accounts fit in?
Stephanie Henshaw
Partner
www.francisclark.co.uk
Obtaining finance:Have you made the best of your balance sheet?
Current assets
- Stock X
- Debtors X
- Bank X
X
Creditors due within 1 year (X)
Net current liabilities (X)
Current assets
- Stock X
- Debtors X
- Bank X
X
Creditors due within 1
year
(X)
Net current assets X
Deferred income X
Deferred income
- Grants
- Customer
deposits
- Payments in
advance
www.francisclark.co.uk
Obtaining finance:Have you made the best of your balance sheet?
Current assets
- Stock X
- Debtors X
- Bank X
X
Creditors due within 1 year (X)
Net current liabilities (X)
Current assets
- Stock X
- Debtors X
- Bank X
X
Creditors due within 1 year (X)
Net current assets X
Creditors due after one year X
On demand
finance
• loans from
directors
• inter
company debt
Repayment <
12 months from
year end
Beware bullet repayments of loans falling due within 12 months
- consider early renewal/ replacement
www.francisclark.co.uk
Obtaining finance:How is your gearing?
• Fixed coupon preference shares,
fixed redemption shares
• Intercompany or director’s loan
where no intention/ expectation of
repayment
• Presented as debt (liabilities) on
balance sheet
• If redemption due within 12 months,
becomes current liability
• Presented as debt of balance sheet
• Consider capitalising into ordinary or
preference shares (no fixed coupon
or redemption obligation)
www.francisclark.co.uk
Obtaining finance:FRS 102: new rules, new challenges
Changes to net
assets
Additional provisions
Fair values for
financial instruments
Reporting
performance
Fair value
adjustments
Presentation changes
More complex
accounting
Must understand
detail of funding terms
www.francisclark.co.uk
Retaining finance:Understand your covenants
• Information covenants
• Which accounts are being tested?
• When does the bank need them?
• Financial covenants
• What basis of accounting has been assumed?
• What are your options when the basis changes?
• Which measures are tested and how are they calculated?
www.francisclark.co.uk
Retaining finance:
FRS 102: new rules, new challenges
Existing
covenants, new
accounting rules
New covenants,
new rules
Which is best:
Renegotiate?
Reconcile?
or…?
Needs discussion
Do you understand
how your accounts
will change?
Impact on covenant
test figures?
www.francisclark.co.uk
Break
Session 2 start time
10:10am
#FCFinanceSW
