Funding FAQ

There are some government grants available for businesses but their criteria are very specific and conditions vary. Examples may be firms operating in rural areas, businesses run by people under the age of 25, or firms trading in a particular area of business. Current information is available from grant consultants, local authorities and business advisers. Banks and the Internet offer grants databases but they are not always updated. Alternatively, companies can pay a local Business Link a fee to analyse grants databases. Business Link also supports a Business Support Directory, a searchable database of government support for businesses, which includes sources of grants and advice. Specific information on grants for small businesses in Assisted Areas (called SFI) and help for new and young entrepreneurs is also given in the rest of this section.

There is funding for some companies working in the information and communications technology sector from the European Union (through CORDIS, the Community Research and Development Information Service) and from the Department of Trade and Industry (DTI). This funding does not extend to companies wishing to use technology in their business. The DTI additionally funds UKISHELP to help UK businesses get European Union research and development grants related to information technology.

The government's Phoenix Fund was established in 1999 to provide money and support to new businesses and entrepreneurs in disadvantaged areas. Money in the Phoenix Fund is distributed to local business support agencies, from where funding is given to local businesses. The Fund includes:

Increased funding up to March 2008 was announced in 2004. Details of projects and financial help provided through the Phoenix Fund are available from the Small Business Service.

The Department of Trade and Industry recommends the Prince's Trust and Shell Livewire as possible sources of finances and advice for people aged between 18 and 30 wanting to start up in business.

The Prince's Trust can help with low interest loans, grants, legal advice and help from a business mentor � to qualify for this help an applicant must be unemployed or in a part-time or inadequate job, and be unable to get funding elsewhere.

In addition to providing general business start-up advice, Shell Livewire runs an annual Young Entrepreneur of the Year Awards scheme with awards of �10,000 � to enter the 2005 competition, entrants must be aged over 16 and be 30 or under on 31st January 2005, and have a legal business in the UK that started trading between 31st July 2003 and 31st October 2004.

New Entrepreneur Scholarships can also help with training, advice and initial funding for new businesses in disadvantaged areas.

The Small Firms Loan Guarantee Scheme is financed by the Department of Trade and Industry (DTI) and designed to help new and established small businesses which employ fewer than 200 people. Businesses must have an annual turnover of no more than �3 million ( �5 million for manufacturers), and must be able to demonstrate that they have applied for a conventional loan from a non-government institution, normally a bank, and failed because of a lack of security.

Under the scheme, the DTI provides security for the loan and businesses then approach their bank in the normal way. As well as bank charges and arrangement fees, the business then pays the DTI a premium for every year of the outstanding loan. The premium is reduced if the money is lent at a fixed rate of interest. The loan can last from two to 10 years and the amount borrowed varies according to the length of time the company has been trading. Currently (2003/04), loans range from �5,000 to �100,000, or up to �250,000 if a business has been trading for two or more years.

Businesses apply for a loan directly to an ‘approved lender’ who will supply their own application form – a list of lenders, as well as further information on the running of the scheme, is available from the DTI.

The Office of Government Commerce and Business Link have produced a website � Supplying Government � dedicated to helping SMEs get public sector contracts in England (plus links to information for Wales, Scotland, and Northern Ireland), with general information on how government buys products and services and on who to contact. The site also includes step�by�step guides to the procurement process and a �Contract Finder�.

The New Entrepreneur Scholarship (NES) scheme provides new entrepreneurs in disadvantaged areas with business support, training and start�up funding.

An individual or �scholar� on the scheme first gets a skills need assessment and personal development plan. He or she will then get 90 hours of business support, which might include workshops with successful business people and work with the Small Firms Enterprise Development Initiative � this period concludes with the creation of a business plan for their proposed new business. When it is decided by the scholar and their advisor that the time is right to start a business, up to �3,500 is available to help � the money can be used for start up expenses like machinery, stationery and office supplies.

The NES scheme is funded by the Learning and Skills Council and managed by the NFEA (National Federation of Enterprise Agencies), the Association of Business Schools and the Prince's Trust.

The NFEA has details of the scheme and names and addresses of local contacts for specific regional programmes; a Map of Local Enterprise Agencies is also available.

Business Links in England and Wales, and Business Shops in Scotland are run on behalf of the Department of Trade and Industry (DTI), and offer support to new and established businesses. They are partnerships between local agencies and provide counselling and consultancy, some of it free, some on a subsidised fees basis. Each Business Link operates at a local level and services vary to meet local demand. Local authorities, chambers of commerce and business advice centres usually make up a Business Link.

Business Links and their associated agencies offer:

Advisers at Business Links generally have a track record in aspects of business, and go through a standard training.

Further Information

For further information see the Business Link web site.

Additionally, in England, Local Enterprise Agencies (LEAs) are partnerships between the private sector and local authorities, with support from government, providing business support services to Business Links � LEAs offer start-up companies and small business firms free business counselling.

�Business incubation� refers to processes designed to help new businesses through potentially difficult early stages in their life. An individual business incubator is usually a limited company offering a supportive work space to new businesses and entrepreneurs. Incubation helps by offering a learning environment, and access to investors and customers. Most incubators in the UK offer a business premise (often in a Science Park), usually with facilities including meeting rooms, catering, office equipment, computers, and secretarial and book-keeping services.

UK Business Incubation (UKBI) encourages incubation in the UK; its website outlines the work of incubators and details its services to members. The site also includes information about sources of finance for small businesses in the UK.

Selective Finance for Investment in England (SFI) replaced Enterprise Grants in 2004 - they are designed for SMEs (companies, partnerships or sole traders) thinking about investing in Assisted Areas but in need of financial help with spending on fixed assets like property, plant and machinery. SFI usually takes the form of a grant or loan. Applications must be for a minimum of �10,000 (and successful applicants tend to get around 10-15% of the capital spending they are applying against), and there are specific criteria (about business location, need, type of expenditure, job creation, viability, and quality of investment) for projects to successfully get a grant or loan. Finance can be given for start-ups, expansions, setting up research and development, and for moving a business from development into production.

Applications are managed by Regional Development Agencies (RDAs) and a business should contact one (or a Business Link office) to check on eligibility for a grant. More details of the scheme are also available through RDA offices.

There are regional schemes to help small businesses, supported by the European Structural Funds. They are normally administered by Government Offices in the English regions and delivered through organisations such as local Business Links (and their equivalents outside England).

Investment business is controlled by the Financial Services Act 1986 and related legislation, including the Insurance Companies' Act 1982 and the Banking Act 1997.

In particular, the law controls elements of investment business such as:

The industry is also regulated by the Financial Services Authority (FSA), which oversees three watchdog bodies:

Further Information

For further information see the Financial Services Authority web site.

�Offshore investments� are investments that are made in a low�tax country by a resident or citizen of a high�tax country. This is done by placing investments such as securities, property or cash in tax havens. Low�tax countries are one of three types:

A person who is resident or ordinarily resident in the UK may be liable to pay the Inland Revenue capital gains tax and other taxes on their offshore investment if they sell them at a profit. However, this depends on their particular circumstances, such as any other income. If the Inland Revenue is satisfied that the offshore company has distributed its profits within two years then the individual may be exempt from paying tax.

Offshore investments are regulated by provisions in the Taxation of Chargeable Gains Act 1992 and are covered by the Inland Revenue. However, certain countries such as Liechtenstein will not usually disclose tax�related information to foreign authorities, so they can be hard to trace.

Further Information

Further information is available on the Inland Revenue web site.

A Business Angel Network (BAN) is a group of business angels, who are wealthy individuals looking for investment opportunities in businesses, and businesses seeking finance.

BANs are set up by agencies such as Business Links, banks and financial advisers. They are usually operated locally and can be supported by both government bodies and large private finance organisations. Networks offer small businesses the chance to put their investment ideas to business angels specialising in specific areas. Contact between the two parties is encouraged by:

For a small annual subscription, the National Business Angels Network will put a description of your business on its web site. It will also pass on your details to other investor networks if requested.

The Business Venture Capital Association publishes a free guide to business angel introduction agencies. Business Links will provide further information and some run their own BANs (call 0845 600 9006 for your nearest office).

The Coalfields Task Force is a regeneration programme introduced by the Department of the Environment, Transport and the Regions; it investigates the problems facing ex-coalfield communities, especially the economic and social inequalities they face compared to other communities, and sets out possible solutions.

In particular, the task force aims to reduce unemployment and improve the quality of life and standard of living of coalfield community residents by improving the accessibility, housing and local environment of coalfield communities and by encouraging business investment. As a result of the issues raised by the task force report the Coalfields Regeneration Trust and Coalfields Enterprise Fund was established.

Since 2002 the Office of the Deputy Prime Minister has been responsible for regeneration programmes � see their website for further information.

The Urban Task Force is a government regeneration scheme trying to find the reasons for urban decline in England; it also aims to offer practical solutions to encourage the return of people and investment to cities, towns and urban neighbourhoods.

Measures for urban renewal include:

Since 2002 the Office of the Deputy Prime Minister has been responsible for urban policy.

The government runs several regeneration programmes, which aim to tackle the problems of social exclusion and inequality where they occur, and improve social, environmental and economic life.

Programmes include:

Since 2002 the Office of the Deputy Prime Minister has been responsible for urban and other regeneration programmes.

The Department of Trade and Industry recommends the Prince�s Trust and Shell Livewire as possible sources of finances and advice for people aged between 18 and 30 wanting to start up in business.

The Prince's Trust can help with low interest loans, grants, legal advice and help from a business mentor – to qualify for this help an applicant must be unemployed or in a part-time or inadequate job, and be unable to get funding elsewhere.

In addition to providing general business start-up advice, Shell Livewire runs an annual Young Entrepreneur of the Year Awards scheme with awards of �10,000 – to enter the 2005 competition, entrants must be aged over 16 and be 30 or under on 31st January 2005, and have a legal business in the UK that started trading between 31st July 2003 and 31st October 2004.

New Entrepreneur Scholarships can also help with training, advice and initial funding for new businesses in disadvantaged areas.

There is no official advice on using venture capital to finance a business, although the Department of Trade and Industry suggests organisations in the field who can provide advice. The main ones are the British Venture Capital Association and the Business Link network. However, legislation does cover the offering of equity to the public under the Public Offers of Security Regulations 1995 and the Financial Services Act 1986.

The Small Business Service has produced a document called �Corporate Venturing�, which outlines the government's and CBI's view on venture capital. Also, the Community Development Venture Fund was set up in May 2002 with �40 million equity and near equity venture capital (with the government investing �20 million). The Fund aims to provide venture capital to SMEs located in deprived areas of England. Businesses should check Bridges Community Ventures for details about the Fund.

Business angels are wealthy entrepreneurs who provide capital in return for being part of a growing successful business. If you require funds of �10,000 to �250,000, a business angel could help. You must be prepared to develop a personal relationship with the individual, who will usually expect hands-on involvement with your business.

A likely business angel is one whose priorities match your needs, and the arrangement tends to operate on a higher level of trust and personal involvement than with other forms of funding. Angels will take a share of profits but if the business does well, shares will be worth more.

Benefits of using a business angel are:

Drawbacks of using a business angel are:

Business angels can be found via:

A promoter is someone who takes on the job of setting up a company and taking the necessary steps to put the plans into action. This includes anyone who helps form a company or raise capital for a new company, and might include:

People working in a professional capacity in the setting up of a company, such as a solicitor or an accountant, are not considered to be promoters.

The promoter is not a trustee or agent for the company because the company does not legally exist at this stage. This means that promoters can make profit out of actions relating to the new company, for example, commission from arranging property sales, as long as they report it to an independent board of directors, or to existing and potential shareholders by, for example, stating it in the prospectus. In practice, promoters often become the first directors of a new company.

Further Information

For further information see the Companies House web site.

Businesses which are unwilling to increase their borrowings or which cannot raise the necessary security for loans may be able to get help from venture capitalists. They provide unsecured finance in return for a part of your business. They take higher risks than banks do, but expect higher returns. The number of shares a venture capitalist takes in a business depends on the size of the loan.

Venture capitalists are attracted by the prospect of rapid growth, usually through innovative ideas or products which must be demonstrated via a business plan. In order to offer shares a business must be limited, not a sole trader or partnership.

Businesses are unlikely to be suitable for venture capital unless they want a minimum investment of �100,000, and can offer an annual return of at least 25 percent on the investment. The management team must normally have a proven track record, and the company must normally have a professional business plan and realistic profit forecasts.

The possible advantages of venture capitalism are:

The possible disadvantages of venture capitalism are:

Further Information

Information about approaching venture capitalists can be obtained from accountants, financial advisers, Small Business Service, solicitors, banks, stockbrokers and The British Venture Capital Association.

The main sources of private funding for businesses are banks, business angels, venture capitalists, private grants and charities. The latter two are unusual sources and are dependent on very specific circumstances. For example, loans and grants are available to people aged between 18 and 25 from The Prince's Youth Business Trust, and grants agents, listed in telephone directories, may be able to find other private funds.

In order to attract any sort of private funding, a business should have a clear idea of its needs and be working to a properly produced business plan which details all sources of income, turnover, costs and future projections. Most funds require some kind of investment from the business itself.

Further Information

For further information contact Business Link and local branches of the Department of Trade and Industry.

Banks will lend money to new businesses if they have a viable business plan, and directors or proprietors are creditworthy. Security is required in the form of assets or other proof that the business can repay the amount borrowed. Loans to sole traders and partnerships are no longer subject to the Consumer Credit Act 1974 and can be quite flexible.

Most of the major banks have literature about different types of business loan. If a business requires money in the short term, perhaps to cover its start�up costs or the purchase of equipment, an overdraft is a way of obtaining the money quickly. However, a bank can demand instant repayment and will usually seek security in the form of personal assets, even if you have formed a limited company.

Business loans are offered for varying periods, usually from two to 30 years and the interest paid by the company can be at a fixed or variable rate according to loan size and lender's conditions. Loans can range from �500 up to �1 million, although different bank managers will have a different discretionary lending limits.