Raising Finance for Growth
JERROMS CORPORATE FINANCE
Raising Finance for Growth
There are now more ways than ever to secure funding to support business growth – banks aren’t the only choice.
The sources and types of finance have grown more numerous, complex and bewildering over the years and there is no sign that the market is going to get simpler any time soon.
Finance is available from grant providers, equity investors, peer-to-peer lenders, crowd funders, regional investment funds, sector specialists and mezzanine finance providers. To make matters even more complicated it is often the case that the aspirations of an owner-management team with a growth funding proposal is met by a mix (or blend) of more than one of these types of finance.
Fear not; it is our job to know the sources of funding available, what they like and what they are less keen on, to advise entrepreneurs on the options available, to help to put together the optimum blend of finance and to work together with the management team to approach the funding market.
We are with our clients every step of the way and can help to prepare the reports, business plans and financial forecast models that the funders will require to support the application.
JERROMS CORPORATE FINANCE
Asset Backed Lending
One of the quickest and easier ways to raise finance to fund growth is to ‘sweat’ the existing assets of the business by raising finance that is secured against those assets. Collectively known as ‘asset finance’ this type of funding comes in many shapes and sizes most which share the common feature that the finance is secured (charged) against an asset of the business.
Property Mortgage
Perhaps the best-known form of asset finance is a mortgage on the property assets of the business. Not unlike its residential counterpart the lender will be interested in the value of the property (security) and for the applicant to demonstrate that they have a track record of generating sufficient profit to repay (service) the loan. The amount that may be borrowed against a business property asset (known as the loan-to-asset ratio or LAV) will vary from lender to lender as will the other terms (covenants) that are required.
Jerroms has a dedicated team of property asset experts and where this type of finance is to be combined with other types of finance (blended) this team will work closely with the Jerroms Corporate Finance team to secure the optimum mix.
Fixed Asset Finance
Possibly the next best known class of asset finance is funding made available through hire-purchase or asset leasing agreements. This is where vehicles, plant & equipment, computer/telephony equipment and sometimes even intangible assets like software are purchased with the support of external finance. The legal and accounting implications (including the issue of ‘who owns’ the asset) of each of the different types of fixed asset finance agreements vary from agreement to agreement; and if you are unclear on these points then professional advice is strongly recommended before you sign an agreement. The market for fixed asset finance is also highly competitive so shopping around for the best deal is recommended.
Jerroms has a dedicated team of property asset experts and where this type of finance is to be combined with other types of finance (blended) this team will work closely with the Jerroms Corporate Finance team to secure the optimum mix.
Trade Finance
Success in business is often determined by the careful management of cash. Many businesses fail because they run out of cash, even though they may have significant amounts owed to them by their customers. Bridging the gap between the point at which an invoice is raised and the time that payment is received can be difficult. For this very reason the use of trade finance schemes such as Invoice Discounting and Factoring are of huge benefit. Using an Invoice Financing facility can massively improve your cash flow by releasing money as early in the process as possible after the order has been completed.
Invoice Discounting and Factoring are useful options for:
- Business Start Up – offers flexible finance to get your new company off the ground.
- Growing businesses – puts cash back to work for your business as soon as you’ve earned it.
- Struggling businesses – bridges the gap between invoicing your customers and getting paid.
In addition to the increased flexibility improved cash flow offers businesses, other key
advantages and benefits gained from Invoice Discounting and Factoring include:
- Releasing up to 90% of the value of your outstanding invoices within 24 hours
- Funding can be secured without requiring other assets
- Cash is freed up to overcome cash flow problems or grow the business
- The level of funding available increases with your turnover
- Paying supplier invoices promptly increases your power to negotiate discounts
- Invoice Discounting and Factoring services are competitively priced
Whether you choose Invoice Discounting or Factoring will largely depend on the size of your business and your sales ledger management resources. If your business is relatively small and your human resources limited, the credit control and collection service that comes with Factoring is likely to suit you better. If your business is larger, and you have the human and information resources to efficiently manage your own sales ledger and debt collection – or if you feel strongly that you want your own company to deal with debt collection – Invoice Discounting is likely to be your preferred option.
If you believe Invoice Discounting or Factoring could benefit your business, or if you have been using this facility but not reviewed your existing rates recently, then contact our team of friendly and professional experts who have a wide knowledge of the key providers in the Invoice Financing market. We offer a free consultation service to help small and medium size business owners ensure they really do get the best deal.
Export Trade Finance
The working capital implications of trading with customers abroad can be even more daunting than those associated with that of UK customers. In addition to the challenge associated with financing your goods for the duration of their transportation by air, road or sea; comes the additional risks posed by foreign currency fluctuations and collecting debts from overseas customers. To assist with these challenges there are a range of export trade finance options. These include letters of credit, bonds, guarantees and working capital loans. Some of these options will potentially free up finance when the goods leave your factory gate/premises and others will underwrite the risk associated with foreign currency fluctuation and/or insure the risk of non-payment.
If you believe Export Trade Finance could benefit your business then contact our team of friendly and professional experts who have a wide knowledge of the key providers in the Export Finance market. We offer a free consultation service to help small and medium size business owners ensure they really do get the best deal.
Cash Flow Finance
In certain circumstances a business may be able to take out a loan that does not rely upon the security offered by one specific asset; instead the finance is secured upon the cash-flows generated by the business. This type of finance is especially well suited to businesses that have few assets (asset-poor) but can demonstrate a track record of having generated consistent profits. In a World where many modern businesses are virtual/trade on-line and their asset base comprises little more than computer equipment and inventory; this type of finance is increasingly popular.
It is worth noting that the fact that a charge is not taken against a specific asset does not make this type of finance unsecured. In most cases a cash-flow loan will be supported by what is known as a ‘fixed and floating charge’ and this means that the lender has security over all of the fixed assets (computers, desks, chairs etc.) and the working capital assets (debtors, receivables, inventory etc.) of the business.
An application for Cash Flow Finance will be typically more complex and involved than for almost any other form of asset funding. It will commonly call upon the applicant to set-out detailed historic financial data (to show a track record of profits), detailed balance sheet data and a financial forecast (usually not less than 3 years ahead).
There are fewer providers of Cash Flow Finance than most of the other form of asset funding but there are still a considerable number of funders and the terms offered (including the amount, repayment terms, interest, restrictions and covenants) will vary.
Cash Flow Finance is a complex financial instrument and professional assistance with an application for this type of funding is recommended.
If you believe Cash Flow Finance could benefit your business then contact our team of friendly and professional experts who have wide knowledge of the key providers in the market. We offer a free consultation service to help small and medium size business owners ensure they really do get the best deal.
Peer to Peer Lending
Businesses that had perhaps previously adopted a more defensive position on the borrowing front are now seeking alternative ways to bank finance to achieve their funding requirements, and a sector that is experiencing increased interest is Peer-to-peer (P2P) lending
What is Peer-to-peer lending?
Peer-to-peer lending is the practice of online auction-based money lending to unrelated individuals or businesses, “peers”, without going through traditional financial intermediaries such as a bank or other financial institutions. Peer-to-peer lending providers facilitate the provision of loans to businesses and property developers through a network of investors.
Why it is beneficial to both lenders and borrowers?
Lenders can potentially earn more from their investments than they would from a high street saving account. Lenders normally seek some security for their lending as they are not covered by the Financial Services Compensation Scheme. Peer-to-peer lenders include; Assetz Capital, Funding Circle, Ratesetter and Zopa.
Borrowers may be able to receive funds that they would not be able to otherwise obtain from high street banks. Funds can also be obtained quite quickly once full details have been supplied to the loan provider. Funds can be used for growing the business, working capital, buying an asset or developing a property.
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What is Equity Finance?
Equity Finance is share capital invested in a business for the medium to long term in return for a share of the ownership in, and in some cases an element of control or influence over the business.
The main advantage of Equity Finance (over asset or debt finance) is that it is not usually repayable at least in the short/medium term. Equity investors will expect a return typically over a 3 - 8 year period in the form of dividends (where appropriate) and from the sale of their share of the business when the business ‘exits’ via trade sale or flotation.
To prospective investors an Equity investment is the highest risk form of capital and as such they will expect the highest form of return in the medium to long term.
Is Equity Finance right for my Business?
The providers of Equity Finance will most often make the majority of their return when the business is sold or floated. If you are not contemplating the eventual sale or float of your business then Equity Finance will not be appropriate for you.
The providers of Equity Finance take the greatest risk of all prospective investors. As the providers of capital that is at the greatest risk they will expect the greatest return on their investment and to be capable of making returns of the magnitude required such investors are typically looking to invest in businesses with high and fast growth opportunities. If your business does not have the potential to grow and to grow quickly then Equity Finance is most probably not for you.
The nature and risk profile of Equity Finance means that the providers of this type of capital will often take an active interest and involvement (often non-executive) in your business. They will also place certain restrictions on the things that you will be allowed to do without their specific consent.
Most Equity Investors prefer to take a minority stake. They don’t want to own your business. Equally they don’t want to take sides in a family fall out, so if your business is family owned then Equity Capital may not be the ideal solution.
For businesses and managers that are focussed upon a strategy of fast growth for exit then the involvement/support of the Equity Investor and the limited restrictions that they will impose do not represent a material challenge but if you are the sort of business owner that would find this type of regime a challenge then maybe Equity Finance is not for you.
What are the Sources of Equity Finance?
Equity Finance can be procured from a variety of sources but the most common of these for SMEs will be Development Capital Funds, Venture Capital Funds, Business Angels, Equity Crowd Funding platforms and possibly Mezzanine Finance.
Development Capital Funds
Development Capital (also called expansion Capital and Growth Capital) can take the form of Mezzanine Finance or Equity Finance (and not uncommonly a hybrid of both).
This type of finance is often used to support slightly more mature businesses than its Venture Capital counterpart where the business needs finance to support its growth ambitions but the finance sought is not available in the debt market (this may be because the balance sheet is already heavily geared or simply because the finance ‘ask’ is just too rich for the debt market).
Development Capital is often structured as preferred equity, although investors may well seek to structure the investment to include some element of debt-like repayment.
In reality the distinction between Development Capital and Venture Capital is blurred and many of the investors that operate in this market will consider either type of investment opportunity.
The types of investors that provide Development Capital to companies span a variety of both Equity and Debt sources, including Private Equity and late-stage Venture Capital Funds, Family Offices, Sovereign Wealth Funds, Hedge Funds, Business Development Companies (BDC) and Mezzanine Funds. Jerroms Corporate Finance can help find the right investor(s) for your business. We manage the whole process from helping you to prepare to approach the prospective equity investor, to finding the investor, to negotiating the deal terms enabling you to do what you do best – running your company.
Venture Capital Funds
Venture Capital Funds are investment funds that manage the money of investors who seek private equity stakes in start-up and small to medium sized enterprises with strong growth potential. These investments are generally characterised as high-risk/high-return opportunities.
Venture Capital is a type of equity financing that gives entrepreneurial or other small companies the ability to raise funding. Venture Capital Funds are Private Equity Investment vehicles that seek to invest in firms that have high-risk/high-return profiles, based on a company's size, assets, and stage of product development.
Although the distinction between Development Capital and Venture Capital is blurred (with many of the fund managers in this market open to the consideration of either type of investment opportunity) Venture Capital will usually consider an investment in earlier and slightly more risky business propositions and it is less likely (although not entirely uncommon) that they will structure their investment terms to draw surplus cash out of the business in the form of debt-like repayments.
There is also a sub-set of Venture Capital Funds that are specifically focussed upon earlier stage and higher risk of investments. These are known as Venture Capital Trusts (VCT’s).
Venture Capital Trust (VCT)
A Venture Capital Trust or VCT is a tax efficient UK investment scheme designed to provide venture capital for small expanding companies, and income (in the form of dividend distributions) and/or capital gains for investors. Investors enjoy up to 30% income tax relief on investment that they make into the trust (total investment is presently capped at £200k for each tax year), exemption from income tax on dividends received and an exemption from tax on capital gains (providing the shares are held for at least 5 years).
VCT is one of a number of UK tax schemes that are intended to encourage investment into the equity capital of risky, early stage, UK SME’s. Two of the other better known schemes are the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).
Enterprise Investment Scheme (EIS)
What is EIS Tax Relief?
EIS is a government scheme designed to help smaller higher-risk trading companies to raise equity finance by offering a range of tax reliefs to investors who purchase shares in those companies.
What are the investment amounts?
Individuals may invest any amount in EIS shares. However, only the first £1,000,000 invested in any one tax year will qualify for relief, although a carry-back facility to the prior tax year is available.
What can the investor expect?
The investor can expect income tax relief at the rate of 30% on the amount invested in qualifying investments. EIS relief can be withdrawn if certain events occur within three years (e.g. the shares are sold).
- Provided that income tax relief has been claimed, any gain arising on disposal of the shares after three years will be exempt from capital gains tax.
- Deferral of capital gains (no limit) on any other assets, by reinvesting all or part of the gain into an EIS company within one year before, or three years after the gain occurred.
- Relief for any losses made on the disposal of EIS shares against Capital Gains Tax or, in some circumstances, income tax in the year of disposal or previous year.
- An investor can, subsequent to the investment, have the opportunity to participate in the running of the business and to receive reasonable remuneration for doing so.
What can the qualifying company expect?
- Certain company activity restrictions.
- The company can enjoy the opportunity to raise finance either for initial start-up or for expansion and this type of investment may be a candidate to be ‘matched’ by Development Capital funds depending upon the geography, sector and stage of development of the business concerned.
To find out more about “qualifying individuals”, “eligible shares” and “qualifying companies” just get in touch.
Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme (SEIS) offers generous tax relief to investors who subscribe for equity shares that equate to a stake of less than 30% in the company.
The new scheme is similar to the Enterprise Investment Scheme (EIS) but the SEIS focuses solely on direct investment into start-up companies with the intention of making it easier for these companies to grow and become established.
The Seed Enterprise Investment Scheme explained:
What are the investment amounts?
- Investors can input £100,000 in a single tax year.
- Maximum of £150K, including any State Aid received by the company in three preceding years.
- Investors cannot control the company receiving their capital.
What can the investor expect?
- Income Tax relief at the rate of 50% in the tax year the investment is made.
- Disposal of the shares will be exempt from Capital Gains Tax once they have been held for 3 years.
Which companies qualify?
A qualifying company must be:
- Unquoted.
- UK based with 25 employees or fewer.
- Have gross assets of up to £200K.
- Have not received any previous EIS or VCT investment.
- Trading less than 2 years.
- Carrying on, or preparing to carry on, a new qualifying trade throughout the three year period from the date of issue of the shares.
Which trades do NOT qualify?
Most trades do qualify but there are some exceptions. A trade does not qualify if it consists wholly, or substantially, of “excluded activities”. A list of the “excluded activities” can be found by clicking here.
To find out more contact our experienced corporate finance team who will be happy to provide more details on the Scheme, advise on its suitability for you, and assist should you wish to pursue this further.
The following activities are excluded from the SEIS:
- dealing in land, in commodities or futures in shares, securities or other financial instruments
- dealing in goods, other than in an ordinary trade of retail or wholesale distribution
- financial activities such as banking, insurance, money-lending, debt-factoring, hire-purchase financing or any other financial activities
- leasing or letting assets on hire, except in the case of certain ship-chartering activities
- receiving royalties or licence fees (though if these arise from the exploitation of an intangible asset which the company itself has created, that is not an excluded activity)
- providing legal or accountancy services
- property development
- farming or market gardening
- holding, managing or occupying woodlands, any other forestry activities or timber production
- shipbuilding
- coal production
- steel production
- operating or managing hotels or comparable establishments or managing property used as an hotel or comparable establishment
- operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home
- generating or exporting electricity which will attract a Feed-in Tariff, unless generated by hydro power or anaerobic digestion, or unless carried on by a community interest company, a co-operative society, a community benefit society or a Northern Ireland industrial and provident society
- providing services to another person where that person’s trade consists, to a substantial extent, of excluded activities, and the person controlling that trade also controls the company providing the services
Business Angel Investment
Business Angels (sometimes known as ‘Dragons’) are typically high net-worth individuals who have often made their own wealth by building up a business that they have then sold or floated. These high net-worth individuals look to invest part of that wealth into the equity of a small number of private companies.
Business Angels are notoriously difficult to find but there is an increasing number of Business Angel Networks (BANs) operating around the UK who seek out prospective angel investors and help to bring together angel investors and the companies/management teams that are seeking angel investment funds.
These networks act much like a dating agency to connect prospective Business Angels with potential investment opportunities that meet the profile that the Business Angel has specified. Some BANs encourage Angels to invest in the form of syndicates where a number of Angels will take a smaller stake in the business concerned; this is especially true of larger investments (£500k upwards). The BAN will often charge for the service that they provide and the level of charges varies from network to network.
Business Angels are often looking for more than just an investment opportunity. Not untypically these individuals have a huge amount of experience, knowledge and contacts that they can bring to the table (in addition to their hard cash) and they will often be looking for investment opportunities where they can ‘add value’ and contribute to the development of the companies in which they invest.
Business Angels typically invest between £10,000 and £500,000 in any individual investment (although investments at the higher end of this scale are infrequent). Larger amounts tend to be syndicated by groups of Angels investing together.
Many Business Angels will look favourably upon investment opportunities that offer Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) tax reliefs and some will invest through EIS or VCT funds.
You need to make sure that the Business Angel is right for your company. The management team and the Business Angel need to be able to work together and the Business Angel’s skills, experience and personality must match your companys needs.
Our corporate finance professionals have considerable experience of working with Business Angels and we have formal/informal relationships with most of the Business Angel Networks operating in the UK as well as many individual Business Angels. We can help you to:
- prepare an approach to the Business Angel community (including the Investment Proposal)
- negotiate the terms with the BAN if one is engaged
- prepare your presentation to the Business Angel or syndicate
- negotiate the terms of investment with the Business Angel
- navigate through the process of securing funds from a Business Angel.
Equity Crowdfunding
Equity Crowdfunding is a way of raising finance by asking a large number of people each for a small amount of money.
Equity Crowdfunding is typically undertaken via an Internet platform where the business seeking investment will post up a short video, a pitch deck and a financial forecast model. Prospective investors are encouraged to review the investment pitch and invest via the platform.
Popular Crowdfunding investors include CrowdCube and SeedRS.
Most fundraising rounds that are promoted via Equity Crowdfunding platforms will offer prospective investors some form of UK tax relief typically either Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS).
From a business owner/entrepreneur/fund-raiser perspective an Equity Crowdfunding platform offers an excellent opportunity to promote your product or service, the opportunity to engage loyal customers/followers as stakeholders in the business as well as the opportunity to raise finance. However, it is important to note that there are some drawbacks to this form of equity finance. Many Crowdfunding platforms will often discourage a listing of a project until at least 30% to 40% of the investment rounds has been pledged and owner/managers will be encouraged to invest a good deal of time/effort in the fundraising efforts. In addition to the time/effort invested, the cost of PR and a professional video all Equity Crowdfunding platforms will charge fees for the funds they raise.
From a Private Equity Investors perspective, great care needs to be taken. Any investment in the equity of a start-up/early stage SME is obviously risky but investments via Equity Crowdfunding platforms often come without even basic investment protections (like voting or pre-emption rights).
If you think an Equity Crowdfunding investment opportunity might be right for you; or you are contemplating raising investment through an Equity Crowdfunding platform; consider taking advice and contact us.
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Grant Finance
At first glance, a grant can appear to be just about the best way of funding your project but it is worth remembering that grants rarely cover the entire cost of the project concerned, they are notoriously difficult to obtain and a good deal of time and effort can be invested even in a failed grant application. It is also worth remembering that many grants are awarded on a ‘relative merit’ basis where there is a limited amount of funding available and the funds are awarded to the application with the greater merit. This means that your grant application may appear to meet all of the specified grant criteria but the application may still fail simply because the grant awarding body determine that other applicants have greater merit.
The number, nature and rules of grant schemes change over time, to get an up-to-date view of the potential grants applicable to your project please contact Jerroms Corporate Finance at the earliest opportunity.
By way of examples, a general list of the sort of grants that are commonly available in the West Midlands is set out below but the following typical limitations are drawn to your attention:
- Grants are rarely available for the total cost of the project – 25% to 50% is more common
- Grants are rarely available for the ‘internal’ costs of the project (your own wages and salaries) and more commonly apply to external costs only
- As part of the application process it is likely that you will be called upon to show that you need the grant funding to achieve the project and how you will fund the balance of the project cost not covered by the grant. For this reason; grants are almost never retrospective and it is wise not to commit to spending on the project until the grant application has been accepted
- Most grants have some form of geographic limitations (i.e. they are targeted at specific often areas judged to have a special economic need and under-developed geographic areas) and many grants have other limitations and rules. Given that most grant schemes are hugely oversubscribed there is little merit in making an application where your project does not meet these rules
- The greater amount of grant support being sought (money or proportion of spend) then (perhaps unsurprisingly) the greater the scrutiny that will be applied to your grant application and the longer the application process will take
- The size of your company (or group of companies) is not usually a barrier to making a grant application but it may affect the amount of the grant available (the larger grant contributions in percentage terms) being reserved for Small and Medium Enterprises (SME)
- It is common that grant awards contracts will set out a requirement for future reporting (on the outcome of the project, jobs created etc.) and if you are successful in procuring a grant you need to be aware that you will be expected to observe these reporting requirements for some years after the grant has been spent
Grant support is sometimes available to contribute towards the costs of expert external assistance needed to make sure that a company is investment ready or to assist in the preparation of the grant proposal. This support is often limited to Small and Medium Enterprises (SME) and will usually contribute a percentage (typically up to 50%) of the cost of expert external assistance procured to assist in the preparation of a Business Plan and Financial Forecast etc.
Grants for Research & Development
Grant support is often available to encourage businesses to carry out research and development work especially where this will lead to technically innovative products, services or processes. The appetite of the grant awarding body will often be influenced by the nature of the innovation, the likelihood that IPR will result from the project, the risk involved in the project (as a rule, the greater the technical risk/uncertainty then the better the chance of securing the grant), the commercial prospects for the innovation and the environmental/social benefits of the project.
It worth keeping in mind that one of the most popular schemes by which the UK Government supports investment in R&D is the R&D Tax Credit. The R&D Tax Credit is not a grant but it can yield a cash contribution towards the costs of R&D and it may prove easier to secure the support of this scheme.
Grants for Investment
Grant support is sometimes available for capital investment projects (like the investment in new plant & machinery) where it can be shown that the grant support is necessary, that it will enhance productivity and that it will create new or secure full-time skilled jobs in the region concerned. The scrutiny of applications for grants of this type will often consider the economic benefit for the region as a whole (applications which simply displace jobs in other regions are discouraged), they will look carefully at the source/availability of the company’s funding needed to meet the portion of the project cost that are not covered by the grant, they will look carefully at the number and type of jobs that will be created by the project and they will look at the commercial justification (sales and profits that will be generated) of the project.
Grants for Investment Readiness
Grant support is sometimes available to contribute towards the costs of expert external assistance needed to make sure that a company is investment ready. This support is often limited to Small and Medium Enterprises (SME) and will usually contribute a percentage (typically up to 50%) of the cost of expert external assistance procured to assist in the preparation of a Business Plan and Financial Forecast etc.
The process of making an application for a grant can be time-consuming, confusing and frustrating. The terminology that grant application forms use may be unfamiliar and the forms difficult to follow. If you are unclear about the potential grant options available, unsure as the suitability of your project or you simply feel that you need some help completing a grant application form, contact Jerroms.
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Grant Funding Applications
Demand for any type of funding is high and competition fierce, and no more so than sourcing and securing relevant grant funding. With limited amounts of funding available and funds awarded based on those applications with the greatest merit, it is vital you make your application stand out from the crowd to ensure success.
How can Jerroms Corporate finance help?
We ensure your application demonstrates relevance to the funding you are seeking, make certain that your application meets the objectives of the funder and demonstrates the credibility of your business.
Contact This email address is being protected from spambots. You need JavaScript enabled to view it., Jerroms Corporate Finance to find out more on how we can help you to maximise your application success.
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Discover some of the recently announced grants that may be of benefit to you.
Click the link below for details on a selection of recently announced grants that you may find of interest. This is by no means an inclusive list of grants available, so if you would like to discover what other potential grants you may be eligible for please contact This email address is being protected from spambots. You need JavaScript enabled to view it., Jerroms Corporate Finance, to discuss in more detail.
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Mezzanine Finance
As its name implies Mezzanine Finance sits somewhere between Debt Finance and Equity Finance. It is not uncommonly used where the financial metrics of the fund-raising deal do not fully meet the requirements of the providers of Debt Finance and for any number of reasons Equity Finance is unsuitable (e.g. family owned business or the business is solid but does not offer the sort of growth prospects that an equity investor is seeking).
The providers of Mezzanine Finance are specialists in their field and they will seek to price the equity risk into what would otherwise look like a Debt Finance deal (with an interest rate and regular repayments). Where they are taking what would otherwise be considered to be an ‘equity risk’ they will seek to price this risk into either (or occasionally both) a redemption premium payable at the end of the loan or some form of equity exit return. The latter will often take the form of an equity option or warrant that will provide the additional return necessary to justify the risk that they are taking if/when the company sells.
Mezzanine Finance is more common in property development deals where the developer is unable to fund the gap between the senior (secured debt) and the overall cost of the project; but it is a form of finance that has great potential to be flexible and as such is beginning to become more popular in other deal types.
Jerroms Corporate Finance works with most of the leading players in the mezzanine finance market and can assist you with the development of the business case to approach these fund managers.
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Jerroms is a trading style of Jerroms Business Solutions Limited 08923059, Jerroms (Bromsgrove) Limited 08433008 and Jerroms Corporate Finance Limited 12112183 .
Registered office for each of these companies is: Lumaneri House, Blythe Gate, Blythe Valley Park, Solihull, B90 8AH