In what, for some outdoor hospitality businesses, is a fallow grant funding landscape, the good news is that alternative funding and financing options for new ventures or to expand businesses do exist. How2 Business Solutions’ Annie Hunter shows you where to look.
For outdoor hospitality business owners, sourcing business funding whether for start up, land use diversification or business expansion and growth is often a frustrating struggle. Undertaking a search for available grants can be time-consuming, confusing and disheartening. While hundreds of UK business grants do exist and can help fund many business expenses, identifying one that you can apply for, meet the criteria on and have a good chance of being awarded, can appear like a ‘post code’ and industry sector lottery.
That’s because the grant scheme provider will have objectives, strategies or aims which the funding supports, hence many grant programmes are targeted to assist regions defined as economically disadvantaged, specific industry sectors and projects. Usually these have criteria for directly creating or safeguarding jobs and involve capital investment. It is extremely rare for a grant to finance the total cost of a project, unless it is for a very small amount. Many grants require equivalent funding: you need to match the funding from the grant provider.
To help identify the few grants that your business may be eligible for, visit government and grant funding information sites (see below). Each listed website provides information on different grants: there is no one source. Secondly, contact your local Regional Development Authority (RDA), Business Link service, Chamber of Commerce or Local Enterprise Partnership (LEP) Growth Hub.
If you do put in the hours to find a suitable grant, ensure you are prepared for the following:
- Be ready to put up your own money. Grants typically cover 15 to 60% of the total required project finance and you almost always need to match grant funding. The smaller a grant is, the quicker it will usually be awarded and going for a smaller grant can often help ease overall financial pressure. Find out when the grant money would actually be paid. It can be up to a year between winning a grant and receiving the money.
- Grants are usually targeted to specific projects. Supporting the organic growth of a business does not normally qualify, though there may be grants in your region themed to accelerate job creation or investment.
- Grants are typically aimed at new projects and often impose restrictions. You will need to demonstrate that your project will help achieve the objectives or strategic aims of the grant provider and that the project would not take place and achieve the same benefits without the grant.
- Have a credible business plan and show that your business is sustainable. You could have the best idea in the world but if you are not worth investing in then you won’t get the money. So, you need to write a compelling, easily understood story and ensure you have read and shaped your application to meet all stated grant criteria, including the financials.
Use a grant consultant. Doing so can save search and application time and increase your chances of success. However, a consultant typically takes about 10% commission and doesn’t usually get involved in grants worth less than around £20,000.
Start up or SME hospitality businesses looking for an external expert to help their business growth can apply for an innovation voucher worth up to £5,000. Applications are made online and subject to a random draw. Most schemes are operated locally or regionally and operate periodically. For current available schemes visit http://vouchers.innovateuk.org
Alternative financing options
The 2007-2008 global financial crisis and ensuing UK recession of 2008-2013 inflicted a period of real hardship for many businesses and their owners. However, a by-product of many banks and traditional financing institutions closing their doors to new borrowers and withdrawing overdrafts from SMEs was the emergence of vibrant and increasingly competitive alternative financing sources. Today these sources threaten to eclipse banks in terms of attractiveness for smaller businesses. Generally, they are also easier to apply for and more flexible, and you are more likely to have your funding application accepted.
Although alternative finance as a whole, including peer-to-peer and peer-to-business lending, crowdfunding and other products, has more than doubled since 2014 and is fast becoming viewed as mainstream, 56% of SMEs are unfamiliar with any form of alternative finance. So, here are a few pointers to the wealth of alternative financing options, from equity crowdfunding to innovative invoice platforms and debt options, for businesses seeking funds at more reasonable terms.
- Business Angels – these investors make equity investments (the raising of capital through the sale of shares) in businesses in the early stages of development or in established businesses seeking expansion capital. They tend to back higher-risk opportunities, seeking to have a high return on their investment over a period of three to eight years when they exit. Most Angels invest through syndicates. In addition to the capital they put in, valuable first-hand skills and experience will usually be shared with the business, as well as their network of contacts. Many operate within small geographic areas. Charges are between £250 and £750. www.ukbusinessangelsassociation.org.uk
- Equity Crowdfunding – many internet-based platforms exist that connect businesses looking to borrow with, potentially, hundreds of thousands of investors. You will need to show that your business is investment ready and, like other forms of equity finance, have a business plan and financial forecasts. A short video to summarise the business opportunity can be beneficial. Crowdfunding platforms typically charge a success fee. www.ukcfa.org.uk
- Peer to Peer (P2P) Loans – these internet-based platforms which operate as a marketplace, match lenders with borrowers, removing any financial institution and usually at better rates. Typically, secured and unsecured loans from £5,000 to £1m over six months to five years can be quickly arranged. P2P loans are also a way of allowing family, partners, friends and customers, who invest through the platform, to share in the returns of the business. As a borrower you will be credit checked. Lenders can state an interest rate at which they will lend, allowing the borrower to accept the lowest on offer. P2P platforms charge an arrangement fee. www.p2pfa.info
- British Business Bank – this government owned business development bank is dedicated to helping those looking to start a business, expand or stay ahead of the competition. The bank works with over 80 finance partners to unlock finance for smaller business, be it general working capital, debt capital, or equity finance. www.british-business-bank.co.uk
- Asset Finance – in the form of a finance lease or an operating lease, asset finance is usually used to obtain items and equipment for your business without incurring the cash drain of an outright purchase. Due to the fact that the loan is secured on the asset being financed, the need for additional collateral is reduced, together with the flexibility to update the asset at the end of the lease. Available directly from specialist providers or equipment suppliers or brokers. www.fla.org.uk
- Invoice Financing and Discounting – this form of asset-based finance provides a means to borrow money against cash owed to you by your customers, supporting cash flow and releasing monies for investment, effectively helping your credit control. Factoring companies purchase invoices owed, advancing the majority of the value of the invoice, managing the sales ledger and collecting the money owed by customers. With invoice discounting your business retains control over the administration of the sales ledger. Interest rates are between 1.5 to 3% plus a management fee of 0.2 to 0.5% of turnover. www.compare-invoice-factoring.com
Does HMRC owe you money?
Before you start to work through the financing maze to determine the best option to meet your business needs, it’s well worth ascertaining if you or your business is owed money by the HMRC in the form of Capital Allowance tax relief. Why? Well, 95% of businesses do not claim their full entitlement, equating to billions of pounds of unclaimed tax relief that can provide an often much needed business cash injection and negate the need to seek financing.
Capital Allowances provide tax relief against expenditure on commercial properties (freehold and leasehold). The scheme benefit is typically 20 to 40% of the qualifying base cost and applies to:
- commercial properties which have undergone renovation, fit out, extension or conversion
- fixtures and integral features applied to a new build or property acquisition
- items integral to running the business such as power, lighting and heating installations, fire and security alarm systems, sanitary and kitchen fittings, phone and data installations, specialist equipment, flooring, windows, ceilings, signage and even artworks.
Commercial property owners and investors can retrospectively claim for unused allowances (often going back years) for alterations, extensions and upgrades to their building, even for eligible work carried out by previous property owners. It can pay significant dividends to engage a Capital Allowance specialist who will often identify up to four times in additional allowances versus the standard accountancy approach, assigning a specialist quantity surveyor to carry out a full site survey and advise on environmentally friendly items, that are subject to 100% tax relief.
An example of the potential benefits gained by using a specialist to assess all due Capital Allowance tax relief.
20% Corporation Tax claimant = £42,888 Tax Saving
40% Personal Tax claimant = £85,776 Tax Saving
Open Air Business has partnered with Capital Allowance Specialists Ltd to provide readers with a free no obligation assessment as to their potential Capital Allowance entitlement. Simply contact 01992 505 011 / email@example.com or visit www.casluk.com
About the Author
Annie Hunter is a consultant for How2 Business Solutions, an information and advisory service for SMEs and large companies. Delivered mainly through a nationwide programme of free seminars, the company provides free information, advice and practical solutions for your business issues to help you achieve more sales and more money with less tax and less risk.