francis clark – funding update workshop - october 2015

Funding Update

October 2015

Presented by Richard Wadman and David Bullen

www.francisclark.co.uk

AdministrationAdmin

Timetable

Coverage – per invite

Questions at the end and over breakfast

Interaction – Compulsory

Slides – See pack

http://www.google.co.uk/imgres?imgurl=http://thattechchick.com/wp-content/uploads/2011/12/ban-cell-phones.jpg&imgrefurl=http://thattechchick.com/ntsb-wants-to-ban-cell-phone-use-while-driving/&h=1200&w=1200&sz=108&tbnid=AxmdXAoGdQTgRM:&tbnh=90&tbnw=90&prev=/search?q=mobile+phone+banned&tbm=isch&tbo=u&zoom=1&q=mobile+phone+banned&usg=__UGk0n_OXmNlCjY9NvEknkw6_0D8=&docid=E2Xx0IJdiqvrQM&hl=en&sa=X&ei=O60cUYnPCMOFhQeMnoFY&ved=0CDIQ9QEwAQ&dur=331


Source: Bank of England

Banks – % change in lending

3

Lending to UK businesses


Banks – absolute £ lending

https://www.bba.org.uk/news/statistics/sme-statistics/bank-support-for-smes-2nd-quarter-2015/#.Vi4MnVJi_IV

8


Appetite and Leverage: national

• Cash holdings continue to grow, reducing SME needs for bank finance. Deposit levels are growing by 9% annually and significantly exceed SME borrowing, by around £59 billion.

• For those SMEs applying for bank finance, approval rates are around 80% for smaller businesses and 90% for medium-sized. The second quarter saw 31,500 loans approved for SMEs.

• Medium businesses in particular are seeing an improving trend in new loans

https://www.bba.org.uk/news/statistics/sme-statistics/bank-support-for-smes-2nd-quarter-2015/#.VhJLG1Jwapp

8


Appetite and Leverage: local

• Increasing flexibility in face of a competitive market

• Relationship focused

• Re-organised – greater emphasis on the SME / MME market (Good news for South West)

• Significant variation in approach/process (credit v local)

• Depends on the nature and structure of a transaction – expansion/acquisition/MBO

• 2.5 - 3X EBITDA upper end for SMEs• Competition will drive up

8


Rates and Terms

Source: Bank of England

10

Should look to achieve lower margins than above + care margin over what?


Rates and Terms

• Likely to go up – but not by much for a while • Rates – consensus from economists of base rate being

c2% by 2019

• Fixed rates / interest rate protection – back on the agenda though will require mutual agreement and borrower sign

11


Rates and Terms

• Lending documentation continuing to grow• Bank’s relaxing terms / covenants on their

documentation? • SME negotiating position generally weak – but can

to look to very “standard terms” (side letter?)• Personal guarantees - easy to give, hard to get

back (build in their release to offer letters?)• FRS102…

• Make sure your projections satisfy the covenants with headroom (say 20% on operational covenants)

• For strong businesses / proposals – ability to negotiate terms

11


Challenge to the Status Quo - UK Challenger Banks

Phrase coined by Vince Cable

Big 4 (HSBC, LBG, RBS, Barclays) plus Santander and Handlesbanken

Metro bank – first new banking licence for more than 100 years

Other challengers – Virgin, Paragon, Aldermore*, Shawbrook*, OneSavings*

Interestingly (*) are Private Equity owned. A number of 2016 flotations planned

Can they “challenge” the Big 4. Time will tell Flexible Speed of response Impact of a downturn? Critical mass? More consolidation?!!


Funding Landscape (Non-bank)

• https://www.gov.uk/business-finance-support-finder

• 557 schemes (down from 630 schemes)

• Main sources of grants, include

• EU/ESIF funds (ERDF, ESF & EAFRD)

• Regional Growth Fund

• City Deals

• Growth Fund

• Innovate UK (Technology Strategy Board)

• Big Lottery – Coastal Community Fund (post 2017?)

• Health Lottery – Community based (https://www.healthlottery.co.uk/about-us)?

https://www.gov.uk/business-finance-support-finder

https://www.gov.uk/business-finance-support-finder

https://www.healthlottery.co.uk/about-us

https://www.healthlottery.co.uk/about-us


External Grant Funds – The Sources

Regional Growth Fund• Monies left behind on dissolution of RDA’s

• £2.4bn

• 2011 to 2015

• Applications > £1m

• Competitive process

• Round 7?

• eRGF (International Mobility & Economic Shock and other funds exhausted)?

• RGF funded schemes for SMEs

• Incl; PWGF1, PWGF 2, GGF+, ND+ UBI, SWGF and Assisted Asset Purchase

• Not sector specific, criteria different for individual schemes


External Grant Funds – The Sources

EU/ESIF

• Convergence: Cornwall 2007 to 2013

• EU (announced June 2013)Cornwall: €592.9 million (£507 million) between 2014-2020

Devon and Somerset:118 million euros (£100 million).

• Eligibility Location, Displacement, Quality Jobs, Sector exclusions


“State aid”

Key phrases

• “De minimis” (< 200,000 euros over 3 fiscal years)

• Block exemption

• Assisted Area

Care

• Other grants

• R&D Tax Credits

• EIS/ SEIS

• Enterprise Finance Guarantee Scheme


Grants, Debt and Equity - Funds

RGF (& eRGF): Individual applications (> £1m)

• Quality projects

• Generate private sector investment and create sustainable jobs.

• The level of grant is subject to State Aid rules

• Robust need for grant argument.

• Maximum grant intervention rate c 30%:

• Some Francis Clark successes in previous rounds and some being assessed now..


Grants, Debt and Equity – The Funds

South West Growth Fund (‘SWGF’)• £8.7m RGF backed grant scheme• Launched Sept 2015• Wider South West, incl Cornwall• Grants of £15k to £1m for capital projects• Intervention rates vary on location and size of business (e.g.,

Cornwall 45% to 25%) • Other support: MAS and SWW• EOI (fee); full application (fee) to panel assessment

• Eligibility (target sectors v displacement)

• Cost/ job (£8.5k)

• Projects to complete by 31 March 2017http://www.francisclark.co.uk/news-views/blog/south-west-growth-fund-swgf-more-details/

http://www.francisclark.co.uk/news-views/blog/south-west-growth-fund-swgf-more-details/





North Devon Plus + Unlocking Business Investment (‘ND+ UBI’)• £4m RGF backed grant scheme (over £1m awarded to date)• HoSW LEP area only• Grants of £25k to £500k for capital projects• Intervention rates vary depending on location and size of

business (10% to 30% under GBER)• EOI (fee); full application to panel assessment

• Eligibility (target sectors v displacement)

• Cost/ job (£10k)

• Private sector investment

• Projects to complete by 31 March 2017http://www.francisclark.co.uk/news-views/blog/unlocking-business-investment-an-update/

http://www.francisclark.co.uk/news-views/blog/unlocking-business-investment-an-update/

http://www.francisclark.co.uk/news-views/blog/unlocking-business-investment-an-update/



Cornwall Marine Capital Fund – Closed?

• Grant funding £50k - £500k for Cornish/ SW based businesses operating in the marine sector;

• Intervention rate 10%-40% depending on value for money, size of business and direct jobs created (large businesses can receive no more than 30%);

• Eligible costs are capital investment into equipment (new and modernisation), premises (building new, modernisation, fit out and bringing old businesses back into use) and marine renewable technology development;

• Allocation of funds to projects within the programme will only be made once proof of match funding has been seen.

• Start with an online EOI

• http://www.cornwallmarine.net/52/about-cornwall-marine-network-6/rgf-201/major-new-funding-opportunity-for-cmn-members-376.html

http://www.cornwallmarine.net/52/about-cornwall-marine-network-6/rgf-201/major-new-funding-opportunity-for-cmn-members-376.html

http://www.cornwallmarine.net/52/about-cornwall-marine-network-6/rgf-201/major-new-funding-opportunity-for-cmn-members-376.html



• Assisted Asset Purchase SchemeGrant contribution to deposit on Asset Purchase

Parameters depend on bank e.g., Lloyds

• Grants < £500k

• 20% for Small Co and 10% for Medium Co

• 1 job created or safeguarded for £15k grant

• No minimum deposit from own funds (?)

• Balance of funds (min £100k) from Lloyds TSB

Lloyds TSB closed. HSBC AAP is closed. Nat West/ RBS is closed. Close Bros and Ignition Credit are open

RGF Funded – limited availability


Creative Businesses

Creative England Funding:• Creative Cities Growth Programme - http://

www.creativeengland.co.uk/business/creative-cities-growth-programme

• Business Loans (interest free) - http://www.creativeengland.co.uk/business/business-loans

• Equity Investment Programme - http://www.creativeengland.co.uk/business/equity-investment-programme

• All Business related support - http://www.creativeengland.co.uk/business

Arts Council:• Funding information - http://www.artscouncil.org.uk/funding/

http://www.creativeengland.co.uk/business/creative-cities-growth-programme



http://www.creativeengland.co.uk/business/business-loans

http://www.creativeengland.co.uk/business/business-loans

http://www.creativeengland.co.uk/business/equity-investment-programme




http://www.creativeengland.co.uk/business

http://www.creativeengland.co.uk/business

http://www.artscouncil.org.uk/funding/


Previously known as “Grant for R&D”

Science, Engineering and Technology: New Products and Services

Grant support for SMEs:

• Proof of market (9 months, £25k, 60%)

• Proof on concept (18 months, £100k, 60%)

• Development of prototype (2 years, £250k, 35% / 45%)

Competitive / Batch Applications

Smart v R&D Tax Credits - cannot have both for same project


SMART

http://www.robothespian.com/blog/news-blog.html


Innovate UK

Suite of funds:

• https://interact.innovateuk.org/

• Some more feasibility study based

• Some more akin to businesses, e.g. Innovation Vouchers

https://interact.innovateuk.org/





Innovation 4 Growth• £4m RGF backed grant scheme • Reopened September 2015• South West businesses with R&D plans• “Experimental development”• Grants of £25k to c£150k for R&D projects• Intervention rate of 35%• Start with 50 word summary of market and technology that project

covershttp

://www.francisclark.co.uk/news-views/blog/innovation-4-growth-is-back-and-aimed-experimental-development-projects/

Applications closed 14 October 2015

http://www.francisclark.co.uk/news-views/blog/innovation-4-growth-is-back-and-aimed-experimental-development-projects/






ESIF and EARDF Growth Programme(s)• EU funding: EAFRD, ERDF and ESF

• “Calls” – National

• Cornwall - http://www.francisclark.co.uk/news-views/blog/future-visibility-on-cornwall-and-isles-of-scilly-esif-calls/

• Heart of SW (EAFRD) - http://www.francisclark.co.uk/news-views/blog/heart-of-the-sw-eafrd-allocation-detailed-acronym-heavy-but-useful-guidance-on-pages-5-and-6/

• Open calls - include one for F&D producers in Cornwall and Isles of Scilly

• To view current ‘calls’ visit https://www.gov.uk/european-structural-investment-funds then tick Location: South West,

• Timings…!

http://www.francisclark.co.uk/news-views/blog/future-visibility-on-cornwall-and-isles-of-scilly-esif-calls/



http://www.francisclark.co.uk/news-views/blog/heart-of-the-sw-eafrd-allocation-detailed-acronym-heavy-but-useful-guidance-on-pages-5-and-6/



https://www.gov.uk/european-structural-investment-funds

https://www.gov.uk/european-structural-investment-funds



LEADER, for example

• Four groups (Local Action Groups or LAGs) in Cornwall

• Cover “rural areas”

• Wider scope than Agri-food sector

• £3.65m allocated to:

• Improvements in farm and forestry productivity

• SME competitiveness

• Farm diversification

• They’re now Open!


Grants

Factors contributing to a successful application…1. Project

2. Eligibility

3. Robust Business Case

4. Business Plan (and Financial Projections)

5. Dialogue with fund holders

6. Understanding their requirements: strategic and operational

7. Need for grant

8. Patience/ Completeness

9. Understanding timelines

10. Match funding – seldom 100% intervention and seldom pay in advance of defrayal


Grants, Debt and Equity – The Funds?

GROWTH FUNDS

• CIOS LEP anticipating a further round and will bid

• Looking for a project pipeline

• Minimum grant £100k

• Projects to support the objectives of existing CIOS Strategic Economic Plan

• Capital projects ready to start in 2016/17

• Can include GP surgeries

• http://www.francisclark.co.uk/news-views/blog/have-you-got-an-economic-growth-project-of-tomorrow-for-cornwall-isles-of-scilly/

http://www.francisclark.co.uk/news-views/blog/have-you-got-an-economic-growth-project-of-tomorrow-for-cornwall-isles-of-scilly/




• South West Loans FundUp to £50k

Viable growth businesses with funding gap

Maximum 5 year term

PGs required

Commercial rates (6% to 10%)

Across the South West


SWIG administered, includes



•£1.2 million loan fund

•Funded by RGF

• Aimed at South West micro, small and medium sized businesses, with growth potential, which are unable to secure all the funding they need (i.e. from the bank);

•Available to most sectors, including those ineligible for European Funding;

•Loans £10,000 - £100,000 (average £30,000)

•Maximum term 3 years

•10% fixed annual interest rate

•Arrangement fee of 2% of loan amount payable on loan draw down

•Businesses must demonstrate investment will create or safeguard jobs

•Available to start up and existing businesses

•application process starts by completing an eligibility form

•http://www.francisclark.co.uk/news-views/blog/south-west-investment-group-swig-add-new-loan-to-their-arsenal/

SWIG administered, includes

http://www.francisclark.co.uk/news-views/blog/south-west-investment-group-swig-add-new-loan-to-their-arsenal/

http://www.francisclark.co.uk/news-views/blog/south-west-investment-group-swig-add-new-loan-to-their-arsenal/



SWIG administered, includes• Start Up Loans

Trading for < 12 months (can be extended to 24 months)

Loans between £500 and £9,900 @ low interest rate (6%)

Average loan of £6k

Fully funded business advice putting together business plan

Fully funded support from a business mentor for a year

http://swigstartups.co.uk/what-we-do/

http://swigstartups.co.uk/what-we-do/



The Banks…including

• Santander’s Breakthrough fund£200m for SMEs (turnover < £25m)

Mezzanine Loan

Interest only: 5% over LIBOR paid quarterly, further 5% rolling up

No set limits on sums borrowed but c £500k to £3m

Not for start-ups

Track record of profitable and cash generative growth (20% pa)



Others

• Energy Efficiency Financing SchemeSiemens Financial Services and Carbon Trust

Business trading > 36 months

Investment in energy efficient equipment (and renewable energy generation?)

Loan e.g., Interest rate c 9% for a 7 year term loan repayable in monthly instalments.

• ReEnergise SmartEnergy FinanceInvestment in renewable energy and energy efficient projects

£5m fund

SMEs – loans of £25k to £250k on commercial terms

Target sectors incl manufacturing, leisure and hospitality


Grants, Debt and Equity

Background

• “UK needs Long Term Finance”

• Small Cap equity finance – Regional stock exchanges (ie Germany)

• Long term equity – Business Growth Fund?

• Corbynomics - Investment Bank targeted at SME long term funding

Believe it or not the UK used to have one – eventually became 3i



Routes to Equity

• “Friends, Families and Fools” Include related businesses?

• Networks e.g., SWAIN, OXIN

• Conduits e.g., UEC Enterprises, GAIN?

• Virtual Networks e.g., Crowdcube

• Venture capitalists and Private Equity e.g., Piper Private Equity, Altitude Partners LLP, Longwall Venture Partners, LDC or Dunedin



Routes to equity – government led interventions

• Business Growth FundCommercial Fund

Bank financed

Investments of b/w £2m and £10m

Minority stakes

Relaxed on sectors – but no property or financial services

T/over > £5m (but will speak to clients earlier)



Routes to equity – government led interventions

• Angel CoFund (RGF)Initial Equity Investments

£100k to £1m

Alongside syndicates of Business Angels

Upper limit of 49% of any investment round

No direct applications by SME


The funds…Crowdsourcing• Equity e.g.,

• Crowdcube - http://www.crowdcube.com/

• BrewDog - http://www.brewdog.com/equityforpunks

• Debt e.g., • Funding Circle https://www.fundingcircle.com/

• Folk 2 Folk http://www.folk-folk.com/

• Rewards e.g., • Crowdfunder http://www.crowdfunder.co.uk/

http://www.crowdcube.com/

http://www.brewdog.com/equityforpunks

https://www.fundingcircle.com/

http://www.folk-folk.com/

http://www.folk-folk.com/

http://www.crowdfunder.co.uk/


Grants, Debt and Equity – Support

Business Growth Service, includes

• Growth AcceleratorCoaching, Access to Finance or Growth Through Innovation (subsidised)

Leadership and Management (subsidised £2k per manager)

• Manufacturing Advisory Service (“MAS”)

• UK Trade and Investment (“UKTI”)



British Business Bank

• Not a provider of funds directly to SMEs, but a provider of funds to 80 finance partners, including SWIG and Funding Circle

• British Business Bank programmes include:• Angel Co Fund

• Enterprise Capital Funds

• Help to Grow Growth Loans

• Enterprise Finance Guarantee Scheme

• Start Up Loans



Growth Hub

• Cornwall & Isles of Scilly LEP - interim• http://www.ciosgrowthhub.com/

• Heart of SW LEP – EOI closes 30 October 2015

• Dorset LEP - http://www.dorsetgrowthhub.co.uk/

• West of England LEP – launches December 2015

http://www.ciosgrowthhub.com/

http://www.ciosgrowthhub.com/

http://www.dorsetgrowthhub.co.uk/

http://www.dorsetgrowthhub.co.uk/



Keeping up to date… Francis Clark

• Finance in Cornwall factsheet

• 2 monthly e-news letters

• Blog

http://us6.campaign-archive2.com/?u=1a2f104dc4bb39dd73a175d38&id=346c22252e&e=%5BUNIQID%5D



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Goodbye to Dave…

@davidbullen