Obtaining finance in the UK

The topics covered are:

• Obtaining equity finance

• Obtaining debt finance

• Other sources of finance

• Regulation – The Financial Services Authority

• 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:

• The London Stock Exchange

• ShareMark

• Venture capitalists

• Business angels

The London Stock Exchange

The London Stock Exchange is one of the world’s premier markets for raising finance. In 2007, over 250 companies undertook Initial Public Offerings (IPOs) at the London Stock Exchange, raising over £26 billion in capital (including 86 international IPOs, the highest amount globally). The key factors for the high number of international 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 1,800 companies with a total market capitalisation of more than £3,500 billion. For further information, please see: www.londonstockexchange.com

• The Alternative Investment Market (AIM): a global market typically for young and growing companies. Almost 1,700 companies (including 345 companies from overseas) are quoted on AIM. For further information, please see: www.londonstockexchange.com/aim

• Plus Market: a market which is not regulated and where securities traded on it are unlisted and unquoted. Many companies use Plus Market prior to listing on AIM or the Main Market. For further information, please see: www.plusmarketsgroup.com/

For a detailed guide to listing on the London Stock Exchange, please see: www.londonstockexchange.com/NR/rdonlyres/

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

Venture capital

Venture capital firms typically make investments of over £2 million in businesses with high-growth potential. The UK has the strongest venture capital market in Europe, attracting US$1.37 billion in 2006 –representing 33% of the European venture capital market (Source: Ernst & Young, 2007).

The British Venture Capital Association (BVCA) 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:

• 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.berr.gov.uk/bbf/enterprise-smes

• Regional Venture Capital Funds, which provide finance of up to £500,000 to meet the requirements of small high growth businesses. For further information, please see: www.berr.gov.uk/bbf/enterprise-smes/info-business-owners/

In Northern Ireland, there are a range of funding packages available, including a specialist venture capital fund (NITech) that supports the commercialisation of technology. For further information, please see: http://www.investni.com/index/develop/

In Scotland, there are a range of private and public supported venture capital funds, including:

the Scottish Venture Fund: an initiative to help growing companies seeking investment of between £2 million and £10 million, the Scottish Co-investment Fund: a £45 million equity fund which can invest between £50,000 and £500,000 in company finance deals of up to £2 million, and

• 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: www.scottish-enterprise.com/sedotcom_home/

• In Wales, the main public sector venture capital services are provided by Finance Wales, where equity investments of £10,000 to £750,000 are available. For further information about obtaining venture capital in Wales, please see: www.financewales.co.uk

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, £500,000). 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. The UK banking industry is globally recognised as being internationally competitive and includes major banks such as HSBC, Royal Bank of Scotland, Barclays, HBOS and Standard Chartered. For further information about providers of debt finance, please see the British Bankers’ Association website at: www.bba.org.uk

Where the directors or shareholders of a company are unable to provide the necessary guarantees for commercial debt finance, an alternative option is the Small Firms Loan Guarantee Scheme (SFLGS). Through the SFLGS, the Government guarantees 75% of the bank loan, with the remaining risk being taken on by the bank through which the loan is organised.

To qualify for the SFLGS, businesses must have been operating for less than five years and have a turnover not exceeding £5.6 million. For further information, please see: www.businesslink.gov.uk/bdotg/action/

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:

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 £250,000 in innovative start-up companies. For further information, please see: www.nesta.org.uk/

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

Grants

There are a range of grants available in the UK, typically provided by the European Union and various 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

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 2008.

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