Focus on: Scotland – 7 Ways to Fund Your Business
Getting funding for a business can be tough. Banks may be loosening the purse strings a little, but are still reticent to give many small businesses everything they need.
As such, new businesses are turning more and more to alternative means of funding their dreams. There are myriad schemes with funds available for businesses, ranging from rewarding innovation and boosting employment to making a positive impact on the environment via either products or business practices. Knowing which schemes or funds to apply for can be a tad daunting, as they all have different stipulations and requirements.
Below, we look at some of the biggest and best funds in Scotland and how businesses can get the funding they need.
Regional Selective Assistance (RSA)
This fund is for businesses that will help create or protect existing jobs. The fund is not limited to Scottish businesses only, but is also available to foreign ventures if they meet the following criteria:
The business is in an assisted area. This means, broadly speaking; a region receiving grants from the government for industrial development.
The Business creates or safeguards jobs.
These jobs should not be at the expense of jobs elsewhere, i.e. the business is creating new jobs, not just taking them/replacing them.
Be funded in the main part by the private sector.
Involve some element of capital investment.
In order to receive RSA, the business must show that it needs RSA in order to be able to continue forward. If the business is already doing well and proceeding toward its goals, then RSA is not ideal. The amount received will depend on the size of the business, its base of operations, and an RSA assessment of how much investment is necessary.
From 2014, the EU is re-addressing state aid rules, as it does in a seven-year cycle. For example, businesses with more than 250 employees might not be eligible for the fund from next year. Submit applications before the 28th of February 2014 in order to be considered.
The Scottish Loan Fund (SLF)
This is a fund made available for small and medium businesses that are struggling to obtain financing from banks. It recognises the need to make up the shortfall that many businesses experience in the early years, when finance is so important but no-one is willing to take the risk. Its target is established businesses with growth potential.
This fund is special in that it provides what is known as a ‘mezzanine loan’. This type of loan is simply one that gives the lender the right to change the loan to an equity or ownership stake in the company should the loan be late in its repayment. For that reason, this model of loan is good for enterprises with growth capability as the speed and structure of the loan make it potentially appealing and profitable for both parties. This type of loan is also more flexible than a bank loan, with the repayment schedule more fluid and no outright equity required in exchange for the loan.
Can be agreed over a specific time frame, ranging from three to seven years.
There is an agreed repayment schedule, however.
‘Holidays’ can be provided in line with business cash flow and growth expectations. For example, no repayments for an agreed upon amount of time.
Interest on the loan is payable, exactly like a bank loan.
The due diligence is quicker than many venture capital vehicles would be able to provide.
The Scottish Seed Fund (SSF)
This fund offers investment to businesses in Scotland early on in their lifecycle. The fund states that its desire is to support businesses that have a high growth potential that increase employment, enter new markets and are producing new products. The fund starts at a baseline of £20,000 and will match investment from private sector sources pound for pound up to £250,000 or to 50 percent of the total business funding, depending on which is lesser.
Can invest as an equity based fund, but is also willing to invest on the same terms as third party investors.
The business must be looking for equity investment.
Business must show that it has sought funding elsewhere.
Be able to demonstrate the capacity or plans that will justify the investment.
Be able to fit the EU definition of a small or medium sized business.
Private equity must make up at least 50 percent of funding: venture capitalists, angel investors, and so forth.
The Scottish Co-Investment Fund (SCF)
The SCF is for small startup businesses attempting to grow. They offer anywhere from £100,000 to £1 million for equity finance deals with value up to £2 million. They invest alongside private investors, such as the aforementioned angel investors or venture capitalists, forming partnerships with them. This helps the business, as it does not have to accumulate investment and secure funding alone. The partner finds the business it wants to invest in and, alongside SCF, invests its own money in the business with the SCF then determining how much it will invest. One stipulation is that the SCF cannot invest more than the partner. SCF has a £72 million fund to invest.
In order to qualify, the business must:
Have its centre of operations as Scotland.
Have less than 250 employees.
Have assets of less than £16 million.
Fall within the EU definition of a small to medium business.
The investment must be matched at least pound for pound by the partner.
The SCF investment cannot exceed £1 million in one or multiple injections.
Aspire Fund
Created in 2008, The Aspire Fund exists to aid woman-led businesses to flourish. It is a £12.5 million fund that can make equity investments of between £100,000 and £1 million. It works on the now-familiar co-investment model, whereby, say, a venture capitalist, co-invests. The objective of the fund is to boost the numbers of successful, women-driven businesses through investment of capital.
Some of the stipulations are as follows:
The fund cannot help if a business is failing.
Works on a co-investment model.
Consideration is given to new/startup businesses, if there is demonstrable proof of growth potential.
The Scottish Venture Fund (SVF)
The SVF is for Scottish businesses with high growth and export expectations, who are trying to attain additional investment. Funding is made available for enterprises looking to make a large change in their operations that will push their growth forwards. They consider investment in shares, as well as debt and mezzanine finance, depending on what is best for the business and its ambitions.
It is a discretionary fund and all investment is subject to due diligence by the Scottish Investment Bank. Some of the terms of the fund are as follows:
Offers a dedicated portfolio manager to help business growth and work with the SVF.
The business’s centre of gravity is in Scotland, with operations taking place there.
Have less than 250 employees.
Have net assets of less than £16 million.
SVF investment cannot exceed £2 million in one or multiple rounds of investment.
Total deal size will not go beyond £10 million.
Public money cannot be more than 50 percent of the risk capital invested.
Renewable Energy Investment Fund (REIF)
REIF is a £103 million fund that the Scottish Government created to support renewables projects. REIF is for businesses that do not fit the criteria for marine, community, or district heating renewable projects.
This fund is not for businesses in the early stages of research and development, but for businesses with financing already in place and which is ready to move forward.
To access funding, businesses must:
Benefit the economy of Scotland.
Be centred in Scotland or the surrounding waters/islands.
Support energy delivery from a renewable source or be working on energy technology that reduces the cost/risks or renewable energy sources.
Be ready before March 2016 to start receiving funds.
Have funding in place, with a gap that REIF could conceivably fill.
Funding can be extremely hard to come by, and it can often seem like no-one is willing to lend a hand. However, as demonstrated above, there are many funds in Scotland, no matter your size, trade, or product that have the funds and the knowhow to make any business a success.