Specialisations
The SME funding adviser scheme has four principal specialisations that can be searched for. The full details of these specialisations are shown below:
Bank Loans and overdrafts (including Small Firms Loan Guarantee)
An overdraft is generally a short term facility (up to 1 year) usually restricted to supporting the needs of working capital (cash required for day-to-day business operations). The Overdraft provided will be determined by factors such as the businesses trading performance and its ability to generate cash.
A Loan may provide a more flexible option to the length of time required for pay back. However, banks can sometimes be reluctant to loan large amounts of money to start-ups with no track record. They may also expect the business owner to generate a share of the capital themselves.
For UK businesses with annual turnovers of less than £5.6 million and which are up to 5 years old with no security or business track record, banks and other financial institutions may lend on behalf of the government under the Small Firms Loan Guarantee, which guarantees up to 75 per cent of the loan for which the borrower pays a 2 per cent premium on the outstanding balance of the loan, payable to the DTI.
The borrowers' track record in previous loan repayments and their credit rating are some of the factors that the lender will consider when making their decision.
Business plans for internal and external use
Many entrepreneurs put together their first business plan when considering setting up a new venture. This plan will often include a budget and will assist the management to run the business, monitor its progress and develop action plans to achieve objectives. These documents are primarily internal.
Businesses requiring loans or overdrafts in excess of £25,000 (the sum varies according to the finance provider) may be required to provide a further business plan. The plan will include a projected profit and loss account, cash flow and a balance sheet. This plan may differ from the internal business plan.
Once the finance has been agreed the business will be required to provide monthly or quarterly management accounts including a comparison with the plan and an analysis explaining significant variances with a note of actions taken to remedy shortfalls.
A further business plan may be produced when businesses are seeking to raise equity finance (from business angel finance to private equity or even floating a business on an equity market). This plan will require much greater detail than normally produced for bank finance.
This is because equity finance is “Risk Capital” (last in line for repayment in the event of the business closing) whereas bank finance is often secured on the assets of the business.
Consequently the plans will be very comprehensive and include details of markets served by the business, the products or services provided, history of the business, details of the management team, the business operations and the amount and intended use of the finance required including the exit opportunities for investors (where the equity issue is not a floatation).
Business start-up (including your own funds, friends and family)
Personal funding of a new business may come from any shares that the entrepreneur has, personal saving, money released from personal assets or from the entrepreneur re-mortgaging their home.
Asking for finance from friends and family may be a sensitive issue that can test relationships but people who know an entrepreneur personally may be more supportive, particularly if they also have run a business.
Drawing up a written agreement of the terms of the financing including how it is intended that the finance be repaid (if a loan) and making it clear that the funding is a business arrangement, may help avoid misunderstandings.
Small Scale equity issues
This generally covers raising finance from an outside investor, without making a public offering. This might entail raising equity from; business angels, venture capitalists, Government supported venture capital funds
A business angel is an individual who may invest in a business in return for a stake in the company. They are best attracted if the business can show that it can offer an attractive return but the business owners must be prepared to relinquish some control. Individually or as part of a Business Angel network they usually provide risk capital in amounts up to £500,000.
Venture capitalists, many of which tend not to fund start-ups, provide finance for growing businesses in exchange for a significant stake in the company. As professional investors, they can bring significant financial and management expertise which may make it easier to attract further funding. Venture Capitalists rarely make investments below £1million and often invest significantly larger sums.
However, there are a few specialist funds that do support seed or start-ups with equity finance, or developed companies with small amounts of equity, depending on the region. These tend to be Government backed or supported and include; Regional Venture Capital Funds, Enterprise Capital Funds and Venture Capital Trusts.
Firms Advising Clients - DPB Regulations
The ACCA is a designated professional body (DPB) under Part XX of the Financial Services and Markets Act 2000 and under that Act has made rules relating to its members and firms carrying on regulated activities. These rules can be found in the ACCA Rulebook 2008 section 2.3.
View the ACCA Rulebook 