Government grants and loan schemes
The government offers a number of business loans and grants, as do Regional Development Agencies and local authorities.
Grants are usually awarded for specific projects or uses, are often related to particular business sectors or geographic locations, and usually require matching funds from the business. There are various types of grant; some are for business development, some for investment in plant or equipment, others for training.
There are also several government-backed loan and investment schemes to help businesses raise finance.
Government loan and investment schemes
The government has set up an 'emergency' package of schemes designed to provide SMEs with easier access to credit and to help with the cash flow problems afflicting many firms during and in the aftermath of the economic downturn.
Enterprise Finance Guarantee Scheme
The Enterprise Finance Guarantee is intended to help smaller, credit-worthy companies which might otherwise fail to secure the funding needed for working capital or investment finance.
The government is providing £1 billion of guarantees to support up to £1.3 billion of bank lending to firms, with an annual turnover of up to £25 million, which are looking for loans of up to £1 million for a period of up to 10 years.
The guarantee applies to loans and can also be used to convert existing overdrafts into loans so businesses can free up their current overdraft facilities to use as working capital.
The scheme is available through a number of lenders including: Airdrie Savings Bank; Alliance and Leicester Commercial Bank; Bank of Ireland (Northern Ireland); Bank of Scotland; Barclays; Clydesdale/Yorkshire Bank; Co-operative Bank; HSBC; HBOS; Lloyds TSB; Northern Bank (Northern Ireland); RBS/Natwest; Ulster Bank (Northern Ireland); Whiteaway Laidlaw Bank; Yorkshire Bank.
Working Capital Scheme
Aimed at larger businesses is the Working Capital Scheme, which secures up to £20 billion of short-term bank lending to companies with a turnover of up to £500 million.
Under the Scheme's terms, the government will provide banks with guarantees covering 50 per cent of the risk on existing and new working capital portfolios worth up to £20 billion.
As well as guaranteeing working capital credit lines for companies - ensuring they will not be reduced or withdrawn - the scheme should free up capital which the banks, as a condition of the package, must use for new lending.
Capital for Enterprise Fund
The Capital for Enterprise Fund provides £75 million of funding, of which £50 million comes from the government and £25 million from the banks (including Barclays, HSBC, Lloyds TSB, and RBS).
The fund, which combines both private and public money, enables innovative, high growth businesses to sell debt in exchange for equity. Firms with a turnover of up to £50 million can gain high risk capital of between £200,000 and £2 million.
Other government loan and grant schemes
The Government aims to provide more UK entrepreneurs and businesses with the access to finance they need.
Finance for Business
Another scheme that enables small firms to access financial solutions such as equity funds, debt funds and loans.
Grants for research and development
The grants are intended for those businesses that conduct research and development work into products or processes that are technologically innovative.
Grants are available for a variety of different purposes: developing low-cost projects (up to £20,000 for businesses with fewer than 10 employees); testing the commercial potential for a new idea or technology and assessing the commercial viability of a new idea or technology (up to £100,000 for businesses with fewer than 50 employees); developing a pre-production prototype that involves a technological advance (up to £250,000 for businesses with fewer than 250 employees); and developing a strategically important new technology (up to £500,000).
Grants for research and development are now known as Smart Grants and can be applied for through the Technology Strategy Board. These are available for small and medium sized enterprises in any sector in the UK.
A number of businesses find themselves chasing more money than a private business angel would be happy to provide but less than would interest a venture capital firm.
In England, the government-backed Regional Venture Capital Fund (RVCF) has been designed to help businesses bridge the so-called equity gap.
The RCVF provides risk capital finance of up to £500,000 for SMEs that have fallen into the equity gap. In Scotland, the Scottish Venture Fund and the Scottish Co-investment Fund can offer investment from £20,000 up to £2 million for high-growth businesses.
Details can be found at Department for Business, Innovation and Skills and the Scottish Enterprise (http://www.scottish-enterprise.com) websites.
Additional sources of finance
Community Development Finance Institutions
Businesses that are operating in disadvantaged areas or sectors may be eligible for funding from a Community Development Finance Institution (CDFI).
The purpose of CDFIs is to give such small and micro businesses access to capital that can be used to buy equipment or lease premises. Loans cover amounts from as little as £50 up to £1 million.
Small self-administered schemes (SSAS)
By and large, firms cannot borrow money from their pension funds. However, small self-administered schemes (SSAS) allow some firms to do just that.
SSAS are occupational pension schemes for shareholding directors of small companies. Provided specific conditions are adhered to, SSAS mean that the company can borrow money from the pension fund for capital investment in long-term assets.
The restrictions are very tight. Only 50 per cent of the value of the assets can be borrowed; and the loan must be secured, for a fixed term and at a rate of interest at least 1 per cent above the clearing banks' base rate.
Any scheme must be approved by HM Revenue and Customs (HMRC) and requires a formal loan agreement.
More information on SSAS can be found at the Pensions Advisory Service website.