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SMEs banking on alternative funding in 2013?

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Thursday January 3, 2013 at 9:00am
Towards the end of last year, the bank-funded Business Monitor revealed that just one in three firms planning to apply for a loan or overdraft were confident their bank would agree to the request, down from more than half at the start of 2012.

And so with confidence in traditional bank lending potentially at an all-time low, small business owners may need to explore other funding options in 2013. But where to start?

There are of course a whole raft of Government initiatives, from grants for hi-tech companies or businesses located in areas of economic deprivation, through to a Business Bank due to launch next year.

Let’s look at some of the help on offer to small business owners seeking funding in 2013.

Business Finance Partnership

Announced in December, £55 million of Government funding will be available to match loans by peer to peer lenders and other finance suppliers, injecting £110 million into small businesses over the coming years. The first four successful lenders appointed in the scheme are: Funding Circle, Zopa, BOOST&Co and Credit Asset Management Ltd (CAML).

Enterprise Finance Guarantee

Launched in January 2009, the EFG helps UK firms with a turnover of up to £41 million, seeking finance between £1,000 and £1million, by facilitating additional lending to viable businesses lacking adequate security or proven track record for a standard commercial loan.

Investor incentives

The Government is looking at a number of ways to incentivise investors to put their money into smaller businesses. Announced in the last Autumn Statement, the Chancellor is consulting over proposals that would allow investors to include AIM stocks inside tax-free ISAs. If passed, this would let investors buy shares in small companies traded on London's Alternative Investment Market inside Individual Savings Accounts bringing further investment to business.

Already underway, the Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies to raise equity finance by offering a range of tax reliefs to individual investors who purchase new shares in those companies. SEIS is intended to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate than that offered by other schemes.

SEIS complements the existing Enterprise Investment Scheme (EIS) which will continue to offer tax relief to investors in higher-risk small companies. Tax reliefs of 30 per cent are available on an investment that the investor only needs to hold for 3 years.

Equity and Angel investors

Funding can sometimes be gained in exchange for a stake in your business. You will need a sound business plan, as potential investors will want to see that you are organised, committed and well informed – and they’ll want to see projected growth figures and the reasons the investment is needed. Select potential investors who have an interest in your sector or experience in the area of business you operate in.

Wherever you plan to get your funding, you need to be able to demonstrate that you are in control of your finances and that any growth projections you produce are realistic and well researched. Any investor will want to see your latest profit and loss statements and balance sheets. Make sure you get the help of your accountant to put together a pack of information that’s convincing and accept their advice when they suggest you need more robust data.

Parkers can help you decide on the best business finance options for you. We will offer advice on alternative sources to finance such as peer to peer lending and asset finance, applying for loans and overdrafts, and other issues such as business planning and managing accounts.

Andy Parker
Chartered Accountant, Birmingham

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