Guide on business finance launched
Politicians have a way of talking up success and downplaying it whenever things are not going so well. It certainly seems to be the case with Vince Cable, Secretary of State for Business, Innovation and Skills, towards the end of June 2014 when helping to launch a finance guide for small businesses.
The guide itself is published by the Institute of Chartered Accountants in England Wales (ICAEW) and was the subject of a release in the Institute’s online magazine, Economia in June 2014.
Secretary of State Cable used the occasion to announce the dawning of new age for the UK’s small business owners seeking access to adequate funding. The ease of access to such finance has been difficult – if not patchy to say the least – but a corner appears to have been turned with more sources of funding opening up to more kinds of businesses whatever their stage of growth.
Cable described as a kind of “Valley of Death” the past scarcity of finance often available for the huge majority of small businesses that had already weathered through their start-up phase of life yet may still be a long way from public listing on the Stock Exchange. He likened the resurgence of funding for such enterprises as kinds of oases.
The Business Finance Guide
In this publication, the ICAEW, along with the British Business Bank and 17 other co-authors, has produced what may be the most authoritative and definitive current guides to funding for small business – defining the available sources of finance in theory at least.
When reviewing the range of options for business finance, the guide splits the potential sources into two – equity finance and debt finance – and suggests at what stage in a business’ life such options might be relevant. Thus:
- start-up loan;
- bank overdraft;
- loans – not just the traditional bank loan, but borrowing from specialist lenders to small businesses, in respect of which Everline produced a rather useful guide to business loans that we suggest you check out.
- bonds – corporate or retail;
- asset-based funding – such as invoice factoring or secured borrowing against company assets;
- leasing and hire purchase;
- export finance – including letters of credit, bonds and guarantees;
- trade finance – borrowing against the value of goods to be shipped; and
- mezzanine finance – a flexible form of borrowing whereby the lender retains the right to convert the debt into equity ownership if the loan is not repaid in full and on time;
- seed finance – from founding shareholders;
- angel investment – business angels typically invest in relatively high-risk business opportunities;
- venture capitalists – are similarly attracted to generally high-risk, high-return opportunities, typically investing in a portfolio of new companies, a proportion of which may be expected to fail;
- equity finance – is typically raised through medium or long-term investment designed to improve a company’s profitability (new products or services, new markets, or operational efficiencies;
- crowdfunding – investment crowdfunding pools the resources of a number of individual investors who share in the risks and the successes of a business; and
- public listing – by listing on the Stock Exchange (through an initial public offering, or IPO), a company may raise capital from any number of interested investors.
The British Business Bank
The British Business Bank is one of the principal co-authors of the Business Finance Guide and represents a joint public-private sector initiative to encourage equity investment in smaller funds.
A number of vehicles have been set up to encourage this investment in businesses which might otherwise not have access to such funding. Thus, the Enterprise Capital Fund includes both public and private sector money available for investment in smaller sized businesses; the Venture Capital Catalyst Fund makes investments in various venture capital funds; the UK Innovation Investment Fund (UKIF) encourages investment in technology oriented businesses; the Business Angel Co-Investment Fund (Angel CoFund) encourages investment in businesses with a particular potential for growth; and the Aspire Fund targets investments specifically to women-owned businesses.
It remains to be seen, of course, whether the initiatives described by Vince Cable are genuine oases of support for small business funding or whether they turn out be little more than mirages of wishful thinking.
More money may be available for small businesses but it is an open question whether that funding is finding its way to a sufficient number of businesses.
According to a report in the Daily Telegraph, the British Chamber of Commerce is reportedly critical of the fact that a lack of adequate funding and support for small businesses is largely responsible for their failing to seize opportunities that exist in export markets for their goods and services.