Where to go for funding when all you’re hearing is “No”?

So, you run a revenue generating business with strong growth potential in a sector that is growing.  You and your team are building the business but you need funding to take it to the next level. And that’s where you’re stuck…

Keen to avoid giving up equity, you’ve talked to the banks but they’re not playing ball and you can easily relate to recent data showing that High Street banks turned down a staggering £1.3billion of overdraft and loan applications from small and medium-sized firms in the first quarter of this year – equivalent to rejecting 53 applications an hour.

It seems it’s all in the balance sheet; they want to see robust sales with consistent growth.  You can show the sales but, for various reasons, your running costs, margins and volume aren’t what they could be, so the balance sheet doesn’t look pretty and your growth strategy isn’t cutting it.

What are your options?

  • Friends and family – great if you can get it (!) but you’ve probably already been there
  • Equity investment from angels or VC’s – could bring both finance and expertise into the business but if you are a) reluctant to dilute share capital and b) short on time (it can take 6 – 12 months to secure equity finance), this one probably won’t work
  • Grant for R & D – the £180m Biomedical Catalyst, is on your radar for current and future projects but that doesn’t answer your need for funding to allow you to grab the opportunities presented by the market today

If all others doors are closed, consider the Regional Growth Loan Scheme (RGLS) as it is specifically aimed at established businesses that have credible growth plans but cannot access the money they need to implement those plans.

Rather than looking at historic performance, like many other lenders/funders, the RGLS is more focused on forward plans and cash flow.   If you can inspire confidence in your product, sector and team and the company has a robust growth strategy in place, the fund managers are more likely to say ‘Yes’, where others have said ‘No’.

The RGLS is run by Finance East (part of The FSE Group).  It has already lent £8.5m to some 60 companies in the East of England and leveraged another £10.5m against these loans.  So a loan from the RGLS could convert a ‘No’ from other sources to a ‘Yes’ if they see an opportunity to de-risk their loan or investment.

Of course, the risk profile of the RGLS does mean higher interest rates (10% – 14%) but when you compare the likely cost of equity finance on exit with the cost of interest on a loan over, say, 5 years, you start to get things into perspective.  We encourage companies to focus on what the loan finance will help them achieve.  If a loan costs 12% but the likely return is 25%, there’s your answer.

If your company fits the criteria and you’re looking for between £50,000 and £200,000, get in touch.

NB The Regional Growth Loan Scheme is for companies in the East of England but there are other funds (known as the Jeremie Funds), run on a similar basis in the North West, North East, Yorkshire and North Wales.

Written by Stuart Ager, Senior Fund Manager, Finance East, part of  The FSE Group

The One Nucleus blog is written by individuals and is not necessarily a reflection of the views held by One Nucleus.


About onenucleus

The One Nucleus blog is written by individuals and is not necessarily a reflection of the views held by One Nucleus.
This entry was posted in November 2012. Bookmark the permalink.

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