Each month Professor Russell Smith answers your queries, and profiles a small business facing a big challenge
8-May-2008
Q. Are there any circumstances in which my business can get a bank loan without me having to guarantee the loan personally?
A. The current "credit squeeze" is likely to see banks becoming more cautious about unsecured loans. Before approaching your bank for debt finance, review your cash requirements with your accountant so that you only borrow what you need and you can meet repayments. Borrowing may be secured by assets owned by the business, rather than your personal assets. In the absence of assets to secure the loan, you could explore the Small Firms Loan Guarantee Scheme in which the Dept of Business, Enterprise & Regulatory Reform (BERR) can offer 75 per cent security against loans of up to £250,000. For more details see the Business Link website (www.businesslink.gov.uk).
Q. I'm thinking of employing a youngster to help in my business, as a Saturday job. Are there any special rules that I must be aware of?
A. In general, you cannot employ a young person below the age of 13. Saturday jobs should not exceed five hours or eight hours for those aged 13-14 and 15-16 years of age respectively. Youngsters should also be given a break of one hour after working for four hours. Separate rules apply regarding certain occupations (e.g., betting shops) and the use of dangerous equipment. See the Directgov website (www.direct.gov.uk) for a guide to employment rights.
Q. I am looking to raise around £200,000 investment for my business - how do I go about finding potential investment companies?
A. The level of investment that you seek is too small to be of interest to the larger Venture Capital (VC) companies and so you should target Venture Capital Trusts (VCTs) and individual "Business Angel" investors. You will need a good business plan, cash flow forecast (business budget) and funding presentation. And you will need a realistic valuation for your business, so that you can set a sensible share price. All of this should be reviewed by your accountant who may also be able to introduce you to VCTs and a local Business Angel network. Your local Business Link adviser will also be able to help introduce you to investor networks. Finally, you should have a Shareholder Agreement drawn up by a lawyer, prior to taking any investment, if you do not already have one.
Q. My business was backed by two investors three years ago. How long can I expect them to hold their shares before wanting to get out?
A. Investors get their money back when their shares in your business are sold - hopefully for more than they paid for them. This can be done at a "flotation" on a public market but, more commonly, this is done via a "trade sale" of your business to another company. It may also be possible to do a "management buyout" in which the management raises finance from an investment company or bank. Private investors usually like to see a return within three to five years and it would be unusual for them to hold shares for more than seven years. It would be wise to discuss your "exit strategy" with your accountant prior to having any meeting with your current shareholders.
Source: http://www.independent.co.uk/news/business/sme/ |
