Our strategy surgeon Bobby Lane, accountant and small business advisor, answers your questions.
Q: I have recently set up a beauty salon. Initially, I relied on savings and help from my family to set it up but I am now in need of some additional funding. Whilst I could go to my bank and ask for a loan, I’ve heard that there are a number of Government initiatives to help small businesses that may need financial help. Can you tell me a bit more about them?
A: Strategy Surgeon says:
Congratulations on taking the plunge and setting up your business. It sounds like you need to get to work on a more in-depth three year plan for your business. It may seem boring but planning and forecasting is crucial so you have a very clear picture of how much money the business will need in six months or several years down the line. That’s my short lecture over! You are absolutely right about Government initiatives and now is a good time to apply for them, as some of them may not be around forever. Here is a summary of some of the schemes that may work for you. Good Luck!
Start Up Loan Scheme
The Start Up Loan Scheme was created by the Government to help people that are starting and growing their businesses. If you have been trading for less than 12 months you can access up to £10,000.
On top of the funding the borrower is also matched with a business mentor free of charge appropriate to the business who can provide a sounding board and support at the initial stages of your business.
Previously it was only open to those aged between 18 and 30 but the cap has now been removed.
The interest rate is currently fixed at 6% and you are required to pay back the loan within 1-5 Years.
Visit www.startuploans.co.uk for more information.
If you approach the bank for a loan, you may well fall down at the last hurdle which is the availability of security to offer such as a house for the bank to secure your loan.
However all is not lost if you do not have the assets to offer the Enterprise Finance Guarantee Scheme currently expected to continue until the 2014/2015 financial year is there to help. The Government guarantee 75% of the loan with the bank taking the other 25% of the risk. However you will have to give a personal guarantee for the amount.
Businesses must be:
- UK Based
- Turnover of less than £41m
- Looking for finance of between £1k and £1m
- Repayment between 3m and 10 years
You will pay a normal interest rate on the loan plus an annual premium of 2% to cover the guarantee which is collected on a quarterly basis.
If the loan route is not for you or you do not meet the criteria. Then another route would be looking for an investor. This could be via friends and family or an independent investor.
This has its downsides as you will have a business partner and will not own 100% of the business. But you will not have loan repayments to make and if you get the right investor that has different skills to you they could make a real difference to the success of the business.
At the present time there are some really attractive incentives for investors to put money into a startup business.
Seed Enterprise Investment Scheme (SEIS)
For a startup a company can raise £150k under this scheme with no one investor putting in more than £100k.
From the perspective of the company it will receive the startup cash needed for the business. From the investors point of view it is incredibly attractive and is a real selling point for a business when trying to attract this type of money. In summary an investor would receive the following benefits:
- 50% income tax relief on their investment i.e. A £100k investor would get back £50k to set against their income tax liability
- If the business is sold after three years there would be no capital gains tax on the sale of the shares if the business is successful
- There would be additional loss relief if the business were to fail in the future
For a larger investment there is the Enterprise Investment Scheme or (EIS) which works in a similar way but the initial income tax relief is only 30%.