Obtaining finance in the UK

An Expert's View about Banking and Finance in the United Kingdom

Posted on: 26 Aug 2010

This fact sheet summarises the main ways in which businesses can obtain finance in the UK.

OBTAINING FINANCE IN THE UK This information sheet summarises the main ways in which businesses can obtain finance in the UK. The topics covered are: 1. Obtaining equity finance 2. Obtaining debt finance 3. Other sources of finance 4. Regulation - The Financial Services Authority 5. Further information The UK has the best developed financial services sector in Europe, offering businesses various options for obtaining finance that range from small, specialist seed funds through to a full listing on the London Stock Exchange. The UK has Europe?s largest venture capital market and is home to the City of London, one of the world?s leading international financial centres. 1. OBTAINING EQUITY FINANCE The UK has well-established financial systems that enable businesses of all sizes to raise equity finance. Key sources of equity finance in the UK include: a) The London Stock Exchange b) Plus Markets c) ShareMark d) Venture capitalists e) Business angels a) The London Stock Exchange The London Stock Exchange is one of the world?s premier markets for raising finance. In 2009, 25 companies undertook Initial Public Offerings (IPOs) at the London Stock Exchange, raising over £1.5 billion in capital (Source: PricewaterhouseCoopers, 2010). The key factors for the number of companies choosing to list in the UK are London?s liquid international trading market, the UK?s high standards of regulation and corporate governance, and good access to emerging market institutional investors. Businesses can choose from a variety of markets on which to list, depending on their requirements. The key markets at the London Stock Exchange are: ? The Main Market: Europe?s most prestigious listings market for established companies and a proven way to raise both capital and profile. The Main Market has around 1,100 companies with a total market capitalisation of more than £1,950 billion. For further information, please see: www.londonstockexchange.com ? The Alternative Investment Market (AIM): a global market typically for young and growing companies. Approximately 1,300 companies (including 240 companies from overseas) are quoted on AIM. For further information, please see: www.londonstockexchange.com/aim For a detailed guide to listing on the London Stock Exchange, please see: www.londonstockexchange.com/companies-and- advisors/listing/trading-shares/guide-to-the-main-market.pdf b) Plus Markets Plus Markets is an independent stock exchange that supports the financing of small and medium-sized companies. For further information, please see: www.plusmarketsgroup.com/ c) ShareMark ShareMark is an online fundraising facility for small and medium-sized companies. ShareMark operates through an electronic auction market, matching buyers and sellers at a single price. For further information, please see: www.sharemark.co.uk d) Venture capital Venture capital firms typically make investments of over £2 million in businesses with high-growth potential. The UK has the strongest private equity and venture capital market in Europe, attracting US$32 billion in 2008 ? representing 40% of the European market (Source: IFSL, 2009). The British Venture Capital Association is the key organisation for the UK private equity and venture capital industry, with over 400 member firms. For further information, please see: www.bvca.co.uk/ In addition to the wide range of private sector venture capitalists, there are also various public sector venture capital programmes across the UK: ? In England, the key funds available are: i) Enterprise Capital Funds, which invest a combination of public and private capital in small businesses at equity levels of between £250,000 and £2 million. For further information, please see: www.bis.gov.uk/policies/enterprise-and-business- support/access-to-finance/enterprise-capital-funds ii) Early Growth Funds, which provide finance of up to £50,000 to meet the requirements of small high growth businesses and start-ups. For further information, please see: www.bis.gov.uk/policies/enterprise-and-business- support/access-to-finance/early-growth-funds ? In Northern Ireland, there is a range of funding packages available, including a specialist venture capital fund (?Northern Ireland Spin-Out Fund?) for early stage technology companies. For further information, please see: www.investni.com/index/grow/research_and_development/ventu re_capital_support_for_r_and_d.htm ? In Scotland, there is a range of private and public supported venture capital funds, including: i) the Scottish Venture Fund: an initiative to invest between £500,000 and £2 million in company finance deals of between £2 million and £10 million, ii) the Scottish Co-investment Fund: a £72 million equity fund which can invest between £100,000 and £1 million in company finance deals of up to £2 million, and iii) the Scottish Seed Fund: aimed at supporting start-up and growing companies seeking loan or equity funding of between £20,000 and £100,000. For further information about venture capital in Scotland, please see: http://www.scottish-enterprise.com/equity-funding ? In Wales, the main public sector venture capital services are provided by Finance Wales, where equity investments of £5,000 to over £1 million are available. For further information about obtaining venture capital in Wales, please see: www.financewales.co.uk e) Business angels Business angels are high net worth individuals who either operate alone (typically investing between £10,000 and £250,000 per deal) or in groups (known as ?syndicates? or ?networks?) where the investment size can be greater (possibly up to, or even exceeding, £750,000). For further information, please contact the National Business Angels Network at: www.bbaa.org.uk/portal/ Business angels will typically seek to benefit from tax relief under the Enterprise Investment Scheme (EIS). For information on the EIS, please see: www.hmrc.gov.uk/eis/index.htm 2. OBTAINING DEBT FINANCE Businesses in the UK have access to a wide choice of providers offering commercial loans, mortgages and credit facilities. For further information about providers of debt finance, please see the British Bankers? Association website at: www.bba.org.uk In addition, the UK Government provides the ?Enterprise Finance Guarantee? scheme which operates through commercial lenders. The scheme provides a 75% Government guarantee on individual loans of between £1,000 and £1 million to viable companies with an annual turnover of up to £25 million. The guarantee can be used to support new loans, refinance existing loans or to convert part or all of an existing overdraft into a loan to release capacity to meet working capital requirements. For further information, please see: www.bis.gov.uk/policies/enterprise-and-business-support/access-to- finance/enterprise-finance-guarantee 3. OTHER SOURCES OF FINANCE In addition to obtaining finance through traditional equity or debt options, there are also other sources of funding available in the UK, typically provided by the public sector. These include: a) Grants There are a range of grants available in the UK, typically provided by the European Union and UK governmental organisations. Each grant has specific qualifying criteria that can include factors such as the location of the applicant business and the particular purpose of the required grant. For further information, please see the UK Trade & Investment information sheet entitled ?Grants and Incentives in the UK? at: www.uktradeinvest.gov.uk b) Community Development Venture Funds (CDVFs) CDVFs typically offer equity of between £100,000 and £2 million to businesses located in deprived areas across the UK. For further information, please see: www.cdfa.org.uk/ or www.bridgesventures.com c) Seed Funds Seed funds in the UK are usually operated by technology transfer organisations within universities, and have a strong focus on supporting innovative technology projects. A leading example of a UK seed fund is the National Endowment for Science, Technology and the Arts, which can invest up to £1 million in innovative start-up companies. For further information, please see: www.nesta.org.uk/ 4. REGULATION - THE FINANCIAL SERVICES AUTHORITY The Financial Services Authority (FSA) is the organisation that regulates all providers of financial services in the UK. The FSA is an independent body that has a wide range of rule-making, investigatory and enforcement powers in order to promote efficient, orderly and fair financial markets. For further information, please see: www.fsa.gov.uk/ 5. FURTHER INFORMATION This information sheet was updated in March 2010. As information changes from time to time, please contact the organisations listed or UK Trade & Investment to confirm any item that you intend to rely on. This information sheet was produced by the Marketing Group of: UK Trade & Investment 9th Floor Kingsgate House 66-74 Victoria Street London SW1E 6SW Tel: +44 (0)20 7215 4957 Email: enquiries@uktradeinvest.gov.uk Website: www.uktradeinvest.gov.uk
Posted: 26 August 2010

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