Tag Archives: funding

What is the Regional Growth Fund?

Regional Growth Fund for SMEsThe Regional Growth Fund (RGF) is designed to provide money to SMEs who cannot access funding from other sources. The money comes from central government but is partly distributed by around 100 regional and national partners. These vary from big banks to local councils and non-profit organisations. Some of the money is also being given to the new Local Enterprise Partnerships (LEP) which are partially replacing the Regional Development Agencies (RDA) which the government scrapped in March 2012.A list of the current Regional Growth Fund programs and their criteria is available as a pdf or excel sheet.

There is a mixture of money going direct from the Regional Growth Fund to businesses and money going from the Regional Growth Fund to organisations who will then distribute the money to small businesses. Most of the money that goes direct from the Regional Growth Fund to businesses ends up with large companies such as Airbus and Rolls Royce. Smaller businesses will normally have to approach one of the regional partner organisations to get funding. In many cases these will be CDFAs, local councils or other traditional sources of business support. This means that some small companies receive Regional Growth Fund money without realising it as they will apply for help from a partner organisation rather than direct to the fund itself.

Companies applying for the funding (directly or indirectly) have to be UK based and looking to grow and employ more people. It is intended to help companies expand into new areas and develop new products but can also be used to ‘strengthen’ a business and ‘protect jobs’.  It is claimed that 2600 SMEs have already received funding through the Regional Growth fund.

If you want to apply for this funding to support your business then the easiest method would be to approach one of the regional partners (pdf) direct. Among these will be organisations who have been awarded money from the government on the condition that they help out small businesses. In some cases this can be tied to a specific industry but by shopping around it should be possible to find some support.

Start-up Loans Scheme Expanded

The UK Government’s start-up loans scheme has been extended only three months after its launch but questions have been raised about how successfully it is being run.

The idea behind the original scheme was to combat high youth unemployment by offering young people, between the ages of 16 and 24, low cost loans to start a business. When they were launched it was said that a typical loan would be £2,500 but the amount can vary. The hope is that they will be able to use their £2,500 to create a viable small business.  In addition to receiving some cash young people would also be given help and advice from business mentors. Both the money and the advice on offer originates with the government but then passes through a series of private businesses and organisations before reaching the young people who have applied for the loan.

The newly extended start-up loans scheme will work on the same principles but anyone up to and including the age of 30 will now be eligible. To cater for this the total funding pot for the loans has increased from £82 million to £100 million over the next three years.

The main criticism of the scheme has come from the way it has been launched and run. Critics including the Shadow Business Secretary Chuka Umuuna have pointed out that the scheme has been slow to start and has not distributed much in the way of funding. The Start-up loans scheme was originally announced back in May 2012 but the scheme did not actually start giving out money until mid September. Between the first announcement in May and the end of December 2012 the scheme had attracted around 3000 enquiries. This has resulted in 460 loans being made. The government’s target is for the scheme to create about 45,000 companies in the next three years. The Start-up Loans Company have acknowledged that it has taken them some time to get started as they tried to put partnerships in place, however they are promising 100 loans per month in 2013.

Regional Variations

Rather than distributing the Stat-up Loans centrally delivery is being left to a series of regional partners who are being administered by the Start-up Loans Company. As part of their announcement today the government have launched some broad figures on the regions where the funding has gone. Using the government’s figures on the regional distribution of businesses it would seem as though the start-up loans distributed so far have been heavily slanted towards London and the South East. The East of England in particular seems to have received a low proportion of loans considering the number of businesses active there.

Regional distribution of start-up loans

The regional distribution of start-up loans compared to the spread of businesses in England

However it is early days yet and most of this variation can probably be explained by the different regional partners getting used to the system. It will be interesting to watch how quickly the loans are given out and where they go in 2013.

Start-up Businesses Using a Smorgasbord of Funding

Back in August we had a look at the Global Entrepreneurship Monitor (GEM) research which tracks entrepreneurship across Europe. One of the findings from the GEM research was that there was a mismatch between where people planning a new business thought they would get their funding from and where they actually sourced funding.

The University of Surrey have done a new study on SMEs in conjunction with the accountancy firm Kingston Smith. As part of this research they looked at where start-ups got their funding from and how sources of funding changed as businesses grew.

In the GEM research 47% of people in the pre-start-up phase expected to fund their venture themselves. The University of Surrey research has found an even higher figure with 72% of people funding start-ups out of their own pockets. The University of Surrey report suggests that this is partly down to a scarcity of funding and partly down to mistrust of the banks. The report found attitudes towards the banks from small businesses “ranges from disappointment to contempt”. Small businesses are therefore actively trying to avoid engaging with the banks.

However, the University of Surrey report did find that the banks still have a role in start-up funding with 28.2% of businesses receiving funding through bank loans. It is important not to see start-up funding as an either/or choice. While 57% of start-ups reported having raised their finance through a single source, 24% had two sources of funding and 11% had three sources of funding. So what we begin to see is a picture of start-ups using their own money to found their business but supplementing this with a bank loan, angel investors, credit cards or other kinds of financing.

The University of Surrey research didn’t just ask businesses where they got their funding from during their start-up phase but also where it was coming from once they were established. They found that nearly 70% of SMEs were bootstrapping their businesses. That is that they were growing their businesses through re-investing profits. However as with the start-up funding many were supplementing this through loans, invoice factoring and income from other activities. As these businesses grew the report found they became more likely to start accessing traditional bank funding. In part this could be down to them having exhausted other sources of capital but also because the banks tend to be more willing to lend to established businesses. As with start-ups growing businesses do not tend to rely on single sources of funding, indeed they tend to diversify more as they grow with 32.9% of growing businesses having 3 or more sources of funding compared to 17.8% of start-ups.

So whether you are in the planning phases of a start-up business or are trying to grow one into an established SME it is important not to focus too heavily on the success or failure of a particular funding type. Successful businesses tend to be getting funding from a range of sources and to diversify these sources as they grow.

Startup and SME Funding

Start-up and SME Funding Sources: University of Surrey - Success in Challenging Times

What the Hell is a CDFI?

In a speech today the Business Secretary Vince Cable praised the work of CDFIs and the CDFI referral scheme currently being run by the British Bankers Association. He did, reportedly, qualify his praise somewhat by stating that “nobody knows what the hell you do”.

Vince Cable quoted on Twitter

CDFI stands for Community Development Finance Institution. They are typically foundations, charities, government agencies or small local banks. Their aim is to lend money to people who cannot get finance from the mainstream banks. Often they focus their activities on disadvantaged communities or sections of society. They will often lend money to people with little or no security and in amounts too small for the mainstream banks to consider commercially viable. According to figures from the Community Development Finance Association (CDFA) CDFIs lent £23 million to 1500 businesses in 2010/2011. This resulted in the creation of 712 new businesses and 2168 new jobs. 55% of this money went to new start-up businesses. 46% of these businesses were Sole Traders and 36% were ‘micro-businesses’ with less than 10 employees.

Business loans from CDFIs

The purpose of Vince Cable’s speech today was to announce a joint venture between the government, The Co-operative Bank and Unity Bank which will channel £60 million of funding towards CDFIs. The CDFIs will then forward the money onto small businesses in their local areas. If you want to take advantage of CDFI funding for small businesses and start-ups the CDFA provide a Finance Finding service.

Guest Post: How to Plan a Successful Crowdfunding Campaign

Michelle Rodger, Chief Communications Officer at Bloom VC, explains how to plan a successful crowdfunding campaign.
How to plan a crowdfunding campaign

What do Barack Obama, an entrepreneur from LA and a widow from Edinburgh have in common?

They have all successfully crowdfunded the money they needed to meet their goals.

  • Barack Obama crowdfunded $47m in $25 donations for his election campaign.
  • Julie Urhman needed $950k to launch Ouya, a revolutionary new game console for TV, powered by Android – she actually raised $8,595,475 from 63,416 backers by “pre-selling” her product on a US crowdfunding platform.
  • And just last month, Elke Barber raised 50% above her crowdfunding target on a Scottish crowdfunding platform after her heart-rending story touched the hearts of hundreds of people worldwide. She can now publish her book for pre-school children who have lost a parent.

Crowdfunding is a new phenomenon. It’s an alternative source of finance for startups, businesses, community groups, charities and social enterprises, and it’s changing the financial landscape forever.

The recent explosive rise in the use of social networking sites has brought crowdfunding to the fore. The ability to reach out and engage a wider audience than ever before means that someone with an idea can ask for backers to help them – and those backers could be on the other side of the world.

There are around 400 crowdfunding platforms out there, many are niche, some are equity-based (where you sell shares or more often parts of shares in your business) the majority are reward-based (where you offer treats or perks in return for donations, often pre-selling the product or service you’re raising the money to produce) but only a few are well known – Kickstarter and Indiegogo in America (both reward models), Seedrs and CrowdCube in the UK (equity) and Bloom VC in Scotland (reward-based).

But whatever the platform, there are a number of things that you have to get right in order to successfully raise your funding.

Build your community in advance of your campaign launch

Just because you build a crowdfunding campaign does not mean that people will simply flood to your project to back you. You need to work hard building your social networks online; start to engage on Twitter, Facebook and LinkedIn, reach out to influencers and start to build a relationship in advance of tweeting them and asking them to give you a tenner. Identify likeminded groups and individuals that share your interests and are likely to support your activity and begin a conversation.

And don’t forget offline either. Make sure your friends and family are primed to back you as soon as your project goes live – seeing a groundswell of support from people that know you will give strangers some comfort and make the decision to back you a bit easier. And remember, there are still many people who either aren’t using social networks regularly or haven’t even joined them, so make sure you target offline publications as well as online publications, remember the humble email database, and consider attending events or exhibitions where you can share your story.

It’s hard work, and you need to continue the engagement right through your crowdfunding campaign. But it’s not a one-off exercise, the community you build during your campaign will remain with you as you launch and grow your business.

Remember, these people are so keen to see you launch your business that they are prepared to pay you to do it – don’t forget them once your campaign reaches target and your business is live. They are now your customers and brand ambassadors – love them!

Be compelling

Everyone has a story to tell, a dream ambition, but what will boost your chances of a successful crowdfunding campaign is how you tell that story. You need to be compelling, you need to share what it is you want to do, why it matters so much, and how people can be a part of that journey with you.

Be honest, be passionate and enthusiastic, use emotions and experiences to make your pitch the standout pitch, the one people are so keen to be a part of that they not only give you money but tell all their friends and family about you.

Use quality images and video to help illustrate your dream. It doesn’t have to be a professionally shot and edited video, and it doesn’t have to cost a lot of money, something shot on your smartphone will be ideal as long as it is short, to the point, engaging, humorous, empathetic, passionate and enthusiastic.

Offer unique rewards

Fabulous rewards are key. Getting the rewards right is make or break for your project; you might have the best pitch, the most compelling video, the most exciting product to launch, but if you don’t get the rewards right people won’t back you.

Get creative with your rewards, get inside the head of your backer – your customer – what would they want. and what would they pay for it? You need to offer a range of rewards that appeal to the widest possible audience, and you need to offer at least one unique reward, something that people couldn’t ever have unless they backed your campaign. You need to create “must-have” rewards, so that people will share your project and encourage everyone they know to choose a reward also.

Ultimately you get out of crowdfunding what you put in, so make the effort and make it work.

Local Banking for the Small Business Market

This week the government hinted that they are moving towards a government backed ‘business bank’. This is something which has been called forSME bank funding by a number of organisations including the Labour Party, British Chambers of Commerce and Federation of Small Businesses. Some of these groups have suggested that the German KFW would be a good model for the government to use. In their Alt+ Finance report the Federation of Small Businesses (FSB) took a detailed look at the KFW model and how it could be applied to the UK market.

One of the issues the FSB report highlighted was the types of banks in Germany and in the UK. The German KFW mainly distributes money through small locally focussed banks. It is these types of institutions which most small businesses bank with. In the UK the banking market is dominated by ‘the big four’. It is these banks which are said to be refusing a third of small business loan applications and which have been guilty of misspelling complex insurance products to small businesses.

Business groups and politicians are now looking to bypass the big four in finding funding for start-ups and small businesses. A wide variety of options have been discussed from crowdfunding and invoice factoring to the rise of ‘challenger banks’.

Challenger banks exist in order to provide an alternative to the big four. For some banks like the Co-operative this is about being ethical in their business practices and investments. For other banks like Aldermore it is about targeting areas of traditional banking which the big four have largely abandoned, such as lending to SMEs. For the Swedish Handelsbanken it is about building personal relationships where loan decisions are made in the local branch by staff who have an existing relationship the business involved.

The last couple of years has also seen an increasing number of the kind locally focussed banks which the German’s rely on. Perhaps the most famous of these is the ‘Bank of Dave’ in Burnley which was the subject of a recent TV series. Close to our Essex base we have the Shawbrook Bank and the Cambridge and Counties Bank. Like Aldermore both of these institutions are focussed on lending to SMEs and providing traditional ‘no nonsense’ relationship banking.

The British Chambers of Commerce has described the relationship between the UK banking and business sectors as ‘damaged’ and characterised by a ‘lack of trust’. The relationship having deteriorated to the point where small businesses are not willing to approach the big banks for loans. It is hoped that the new local banks and challenger banks can start to repair this relationship and help small businesses to grow. So if you are looking for funding for your business it is worth remembering that your options do not begin and end with the big four.

Government “Small Business Bank” Being Discussed

Funding for small businessesIt is widely recognised that small businesses are struggling to get funding from the mainstream banks. The scale of this problem is such that it is said to be holding back the whole UK economy. As a result The Labour Party, The British Chambers of Commerce and the Federation of Small Businesses have all called for the creation of a UK business bank.

The government have been dropping heavy hints about creating a new “small business bank” over the last week or two. Many newspapers have greeted these hints with headlines stating that the government has launched or confirmed a small business bank.

So far the government has not announced any details on what they are planning to do. Official statements from the government are only using the phrase ‘business bank’ in inverted commas and are instead referring to the establishment of ‘a new institution’. They have also made it clear that whatever this ‘new institution’ might be it is very much in the planning phases. They have committed very little to writing and what they have published is in press releases. The fullest statement so far on a business bank comes from a press release on the Department for Business website, it says:

A new institution needs to be created to help companies invest in capital and drive their expansion. The scale and modus operandi of the institution are still under discussion, but it could operate through alternative providers such as the new challenger banks and non-bank lenders.

Not only would this boost their lending capacity, but would also corral existing provision such as co-investment and guarantees to support business expansion.

Reading between the lines in this statement, and taking some of the rumours from press reports, it looks like the government is thinking about creating something along the lines of the German KFW or American SBA. This would be in line with what both the Federation of Small Businesses and the Labour Party have recommended.

Neither the German KFW and American SBA act as banks in the normal sense. They do not typically lend directly to businesses or take deposits. Instead they operate in a layer above the banks. They act as clearing houses for government loan and finance guarantee schemes. The actual money is given to businesses by small, locally focussed, regional banks. As the Federation of Small Business has pointed out one of the issues the UK faces is that we do not really have small locally focussed banks. To fully replicate the success of the German or American schemes the UK government would either need to try and replicate these institutions or alter the model sufficiently to account for their absence.

At the moment all we can do is wait to see what the government decide on. The creation of a full scale bank is unlikely and even the German or American model might be a stretch but only time will tell.

The Expectation and the Reality of Funding a UK Start-up

In a recent study published by GEM lack of funding was cited as the major stumbling block by 50.6% of people who were thinking about starting their own business. The unwillingness of banks to lend to new and small businesses has been well documented in the media. The government and a whole host of entrepreneurs are currently engaged in trying to solve this issue. Alternative funding sources such as invoice factoring and peer to peer lending are being backed by the government while crowd funding is one of the hot topics of the day.

However the GEM report also indicated that borrowing money from banks or crowd funding start-up capital are not the only options available. It also shows that the expectations about where people think they will get funding do not always match the reality.

Support Your Local Crowdfunder

The big boys of the crowdfunding scene, Kickstarter, sent out a tweet last week announcing they will launch in the UK in the autumn. Kickstarter’s have not revealed their motives for launching in the UK. When we attempted to ask them their reply was that they had decided to ‘decline an interview’.

UK Crowdfunding Websites

Of course Kickstarter will not be bringing crowdfunding to the UK. There are already a number of established UK based crowdfunding sites they will be competing against. Some of the best known of the UK based crowdfunding sites are:

Seedrs.com – Seedrs launched a couple of weeks ago. Rather than bypassing the rules that normally govern lending and investment Seedrs have spent over a year getting approval from the FSA for their business model. This makes them the first crowd funding site in the UK, and possibly the world, to be approved by major financial regulators. This means that Seedrs is able to let you to invest in companies in exchange for shares and earn dividends on them. (We tried to ask Kickstarter if they will be regulated by the FSA but they decided to ‘decline an interview’).

Crowd Cube – Crowd Cube operate a similar model to Seedrs in that you can invest in real businesses for real money and get equity in return. They are also keen to help investors take advantage of EIS and SEIS tax relief on their investments. Based in Exeter they buck the trend of tech start-ups congregating in East London. Along with Crowdfunder they are one of the few UK sites to have joined the Crowdfunding Accreditation for Platform Standards (CAPS) program.

Bloom VC – Bloom was founded and is run by two experienced entrepreneurs. They take on business as well as creative projects. Unlike Seedrs  and Crowdcube this is not an investment site. Instead it works on promises. The funders promise to give a project money and in return the project promises to give them exclusive access to the product, t-shirts and the like.

Crowdfunder – Crowdfunder operates the standard model of asking for investments in return for gifts or products. They have a mix of projects on their site ranging from theatre productions to technology companies.

Buzzbnk.org – Buzzbnk is a specialist marketplace for social ventures. It allows people to contribute time as well as money to support charities and community organisations.

This is no-where near a comprehensive list of the UK based crowd funding platforms Kickstarter will be competing against. This is without even gaining into websites offering peer to peer lending for established businesses like Funding Circle.

Undoubtedly Kickstarter is the biggest and best known crowdfunding platform on the market and its launch in the UK will have a big impact. We can expect to see at least some of the UK based crowd funding platforms to disappear as the market consolidates. However there is time for the UK based crowdfunders to get organised, make a stand and take on the Americans.

UK Government Expands Support for Start-ups

Start-ups are a very hot topic at the moment. The government, along with business and various campaigning groups are very keen on encouraging people to start new businesses. This is seen as a way to stimulate growth out of the current recession and create jobs. Lots of announcements have been made and schemes launched in the last 6 months. Some of these are now reaching the point where they are actually going live.

Government Startup SupportOne of the government’s more publicised initiatives is the small start-up loans available to 18 to 24 year olds announced back in May. Up until this week no-one was sure when these loans would actually be available, however reports from a marketing meeting held by Startup Britain on Monday suggest that the loans will be available at some point in September. There is no official confirmation of this as yet. You can register your interest in applying for a start-up loan on the government’s Business in You website.

One of the criticisms that has been levelled at the start-up loans initiative is that it only targets young people. There are already established schemes for young people run through The Princes Trust, Shell Livewire and VM Pioneers among others. However there are very few similar sources of funding or support available to people over the age of 30 who would like to start a business.

This week the government has announced a new scheme called Ready for Business which may address this issue. It is being funded through the government’s Regional Growth Funds with a contribution from Barclays Bank. The scheme will be run by the newly formed Cavendish Consortium which is made up of the National Enterprise Network, six regional ‘enterprise support organisations’ and Barclays. There are no age limits on this scheme and it is targeted at public sector workers who are undergoing a ‘transition from employment’. So the idea is that people who are being made redundant from the public sector should start a business instead of trying to find a new job. This funding is being targeted particularly at ‘areas disproportionally affected by the downturn in the economy’.

The Ready for Business scheme largely provides training and support to come up with a business plan and to learn how to run a business. There is no specific funding attached to it but the scheme promises support and guidance in applying for funding from other people. It is claimed that this scheme will create 6,000 new businesses and 10,000 new jobs.

Getting funding is the single biggest challenge for most start-ups at the moment, with the banks reluctant to lend. The government hopes to solve this with their new Funding for Lending scheme where they essentially give the banks money on the condition that the banks then lend it to small businesses and homeowners. Meanwhile the Seed Enterprise Investment Scheme came live in April this year. This scheme gives investors tax relief on investments in new start-up companies. The government has also pledged to give £100 million to alternative lending schemes such as invoice factoring and crowd funding to further bypass the banks.

It will take time to see what effects these schemes have on the number of start-ups that can get funding and the number of start-ups that survive. The real measure will be if they can, as the government hopes, get Britain out of the current recession and make a dint in the unemployment figures, especially for young people where the rate is currently over 20%.