Finding Funding: Do you know where to look?

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Following the recent award of £367,000 to Lancashire business, Denwa, organisations in the region should look to be aware of the different funding options available to them.

Denwa Limited was the recipient of an award from Lancashire County Council’s Rosebud Finance scheme, to assist with job creation and the company’s expansion plans.  It was the third time the company had received funding, as it looks to double turnover in the coming year.

Under Rosebud Finance, a variety of finance products are available to SMEs operating in the Lancashire County Council area in the following sectors: Aerospace, Advanced Manufacturing, Creative and Digital, Energy and Environmental, Finance and Professional.  Businesses can apply through the website of Enterprise Ventures, which manages the fund for LCC.

Businesses looking to raise finance, whether for a particular project or to assist with expansion generally, should consider the different forms of funding.  The Regenerate Pennine Lancashire website provides a summary of various finance and services available across the region.

Debt finance

This is a general term to describe instances in which money is effectively loaned to a business, whether in the form of a lump sum (e.g. a bank loan) or periodical payments (e.g. an overdraft or facility arrangement).

Where companies are taking on equity finance, directors should be aware that lending institutions are likely to request personal guarantees from directors, so that they are personally liable for the debt in the event the company defaults on its repayments.  Lenders usually want to also take security for the loan: where the company has fixed assets such as plant and machinery, a lender will often take a fixed charge over that property, to ensure the company cannot sell it without the lender’s consent.  Similarly, floating charges may be taken over assets such as stock and book debts.  This allows the business to continue to operate but in the event of insolvency, the charge will ‘crystallise’ into a fixed charge, meaning the company can no longer deal with those assets.

Whilst debt finance is not all doom, gloom, and fixed charges, it is important that businesses are aware that it is not necessarily as straightforward as simply asking the bank for a loan.  Where finance is obtained and use properly, however, it can prove invaluable in unlocking the growth potential of a business.

Equity finance

An alternative source of finance for companies is direct investment into the business in return for shares.  Some owners may inject further cash by taking more shares themselves, but businesses have often exhausted that avenue when they come to expand further.

It may be that an investor has approached the company, or that a company has sought assistance from business angels and venture capitalists who will buy shares with a view to selling them at some point in the near future – after their investment has borne fruit and increased the value of the shares.  In both instances, the company’s directors will need to consider whether it is in the company’s interests to issue shares and ensure that they have the appropriate authority under the Articles of Association, and seek shareholder permission, where necessary.

Directors should, however, be wary of how they conduct themselves in this regard.  Under the Companies Act 2006 it is an offence for a private limited company to offer its shares to the public, though there are certain exceptions, for instance where there is a directed offer, or the offer is a ‘private concern.’

Whilst there is no liability to repay equity finance as there is with a loan, owners of companies will likely have to accept a reduction in their proportionate shareholding if they are to welcome the assistance of equity investors.

Grants

Local authorities across the country may also implement their own schemes, similar to Rosebud Finance, in an attempt to help new businesses start up or established businesses to take the next step up.  Whilst some schemes may operate with loans, these can often interest-free, though some providers may require the company to match the funding being offered.

Comment

In all instances of cash flow and expansion plans, businesses are encouraged to take accountancy advice to determine which funding route is most appropriate.  Once businesses have decided how to proceed, Forbes Solicitors can assist in a number of ways, such as:

  • Reviewing and reporting on the terms of personal guarantee agreements
  • Reviewing and reporting on the terms of facility agreements
  • Producing board minutes, shareholder resolutions, and Companies House documents, as necessary, for the issue of shares to investors
  • Advising on the scope of legislation relating to offers to the public and the exceptions available

If you would like more advice on the services we offer, please contact Jenny Burke, a solicitor in the Corporate & Restructuring department, specialising in corporate transactions, on 0800 689 0831.

Jenny Burke

About Jenny Burke

Jenny Burke is a Solicitor within the Corporate & Restructuring department at Forbes Solicitors and assists business clients of all sizes from a range of sectors with transactional and advisory work. Jenny’s blogs cover her specialisms of mergers and acquisitions, corporate restructures and re-organisations and partnership and shareholders agreements.
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