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Home > Financing Best Practice > Raising Capital in the United Kingdom

Financing Best Practice

Raising Capital in the United Kingdom

by Lauren Mills

Executive Summary

  • It has never been harder to raise capital. The credit crunch means banks are even less willing to lend money to small and medium-sized enterprizes (SMEs). So raising capital is likely to be more time-consuming and costly than before. It is therefore vital you know how much money you need, and what you need it for, before approaching potential backers.

  • A lot will depend on whether you are funding a start-up, buying an asset, seeking growth finance, or looking for an exit.

  • Whatever stage you are at, you must have a business plan, strong management, and good growth prospects—or potential backers are unlikely to be interested.


Raising capital to grow a business has never been more challenging or time-consuming. While there are still many sources of finance, ranging from government and EU grants, to bank loans, private equity, angel investors, or a stock market flotation, some will be easier to come by than others in the post-credit crunch climate. One of the biggest problems will be deciding which route is best for you.

Before weighing up the pros and cons of each, carry out a ruthless analysis of your business. Start by asking yourself some elementary questions. Do you have strong management in place? Do you have a business plan? Do you know what you need to do to move your business to the next stage? This may sound somewhat elementary, but it is surprising how many companies keep drifting in one direction without knowing whether this is the best route to pursue, or whether the best captain is at the helm.

It is therefore essential to have a clear idea of what you want to achieve and how you are going to achieve it before approaching potential financiers.


In January 2009, the United Kingdom’s Business Secretary, Lord Mandelson, announced a new package of financial measures to help businesses with short-term funding issues weather the economic downturn. Help is also available for companies looking to finance the next stage of growth.

The support package consists of loan guarantees and a new Enterprise Fund. It is intended to help companies which are struggling to obtain finance for working capital and investment.

The Government measures include:

  • A £10 billion Working Capital Scheme, securing up to £20 billion of short-term bank lending to companies with a turnover of up to £500 million.

  • An Enterprise Finance Guarantee Scheme, securing up to £1.3 billion of additional bank loans to small firms with a turnover of up to £25 million.

  • A £75 million Capital for Enterprise Fund (£50 million from government, plus £25 million from banks) to invest in small businesses which need equity.

The Working Capital Scheme is a direct response to the constraint on bank lending to ordinary-risk businesses with a turnover of up to £500 million a year. The Government has agreed to provide banks with guarantees for 50% of the risk on existing and new working capital portfolios worth up to £20 billion as part of the scheme.

The Government guarantee will free up capital, which the banks must use for new lending as a condition of this scheme. This is lending that would otherwise not have been provided, the UK Government has claimed. The first £1 billion guarantee tranche of the scheme is expected to be available in March 2009.

The Enterprise Finance Guarantee is intended to help smaller, credit-worthy companies which might otherwise fail to access the finance they need for working capital or investment finance due to strict lending conditions.

The Government will provide £1 billion worth of guarantees to support £1.3 billion of bank lending to smaller firms with an annual turnover of up to £25 million, which are looking for loans of up to £1 million for a period of up to 10 years.

The guarantee, available through high street banks, will apply to loans and can also be used to convert existing overdrafts into loans to enable businesses to free up their current overdraft facilities to meet working capital requirements.

To help businesses raise new long-term finance, the UK Government is also offering to invest in viable companies which have high levels of existing debt through the new Capital for Enterprise Fund.

The Government also provides a range of financial support to businesses—including loans and loan guarantees, grants, and equity—through various “Solutions for Business” products.

To find out more about what is on offer, the best starting point is your local Business Link. This is the Government’s business advice network, which offers an abundance of information online, over the telephone, or via face-to-face meetings with an adviser.

A new “one-stop shop,” easy-to-use web portal has been launched on the Business Link website to direct companies to the most appropriate form of support, and help them assess their eligibility for the various schemes.

There is also a Grant for Business Investment (GBI), which provides capital to support business investment or job creation projects and is part of the Government’s Solutions for Business portfolio. The idea is to help businesses grow, become more efficient, modernize, and diversify.

A grant under GBI is for the acquisition of key assets such as buildings, machinery, and equipment, and to help create new jobs or safeguard existing ones. Grants start at a minimum of £10,000 and there is no maximum limit. The final amount will depend on the size and location of the business, and the size and quality of the project. It is also worth bearing in mind that businesses applying for this grant will be assessed according to the level of skills they require within their workforce, and their anticipated productivity improvement. So companies must be clear about what they hope to achieve before applying.

In Scotland, this is called the Grant for Regional Selective Assistance (RSA). Information about this can be found on the Scottish Business Grants website.

In Northern Ireland, it is called the Enterprise NI Loan Fund (ENILF). Information is available on the Enterprise NI website.

Remember, there is a limited pot of cash available, so competition for grant funding is extremely fierce. Furthermore, the application process is often long-winded and arduous. Applicants must complete detailed application forms. They must also demonstrate how they will satisfy the funding conditions and requirements of any one scheme. It is essential that you understand the Government’s economic objectives in providing grants and tailor your application to meet them.

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