ENTREPRENEURSHIP & NEGOTIATION  Lecture: 6  FINANCING THE PLAN  &  HELP FOR SMALL FIRMS

ENTREPRENEURSHIP & NEGOTIATION WHY HELP SMALL FIRMS: 1.Creation of jobs 2.Sources of Innovation 3.Competition to large firms 4.A level playing field

ENTREPRENEURSHIP & NEGOTIATION RAISING FINANCE: a.HOW MUCH IS NEEDED ? b.WHAT IS IT NEEDED FOR ? c.SOURCES AND METHODS OF FINANCE ? d.GRANTS ? e.REDUCING THE NEED TO BORROW ?

ENTREPRENEURSHIP & NEGOTIATION . HOW MUCH IS NEEDED: What will the finance be needed for a.SHORT TERM FINANCE b.LONG TERM FINANCE

ENTREPRENEURSHIP & NEGOTIATION .. –SOURCES AND METHODS OF FINANCE: –1.SHORT TERM FINANCE: a.OVERDRAFT b.CREDITORS c.FACTORING LONG TERM FINANCE: a.SHORT TERMS LOANS b.LONG/MEDIUM TERM LOANS c.HIRE PURCHASE d.MORTGAGES e.GRANTS f.EQUITY/VENTURE CAOITAL

ENTREPRENEURSHIP & NEGOTIATION REDUCING YOUR NEED TO BORROW : 1.PREMISES 2.EQUIPMENT/MACHINERY 3.FIXTURES & FITTINGS 4.STOCK 5.DEBTORS 6.OTHER COSTS

ENTREPRENEURSHIP & NEGOTIATION SHORT TERM FINANCE: The Overdraft Simple Agreed Limit Interest Rate exceeds Base Rate Cash Flow usage only Creditors Supplies of Credit No Interest Charge Discounts possible

ENTREPRENEURSHIP & NEGOTIATION Factoring Alleviates Cash Flow problems 80% of Credit Sales could be covered Interest Rate 1% - 5% of Turnover Administration reduced Reduces contact with customer

ENTREPRENEURSHIP & NEGOTIATION LONG TERM FINANCE: Short Term Loans Used for small Capital items Inflexible Interest Rates 1 –3 years repayments permitted Medium/Long Term Loans Used for Fixes Asset purchases Interest Rates Fixed/ Flexible Repayment holidays allowed Guarantee’s required Gearing

ENTREPRENEURSHIP & NEGOTIATION Hire PurchaseEasy to arrange Secure High Interest Rates Mortgages Commercial Advance up to 60% Commercial/ Residential Advance up to 90% Fixed/Flexible Interest Rates Repayments over 20+ years Finance Houses Insurance Companies

ENTREPRENEURSHIP & NEGOTIATION –Hire Purchase Easy to arrange Secure High Interest Rates Mortgages Commercial Advance up to 60% Commercial/ Residential Advance up to 90% Fixed/Flexible Interest Rates Repayments over 20+ years Finance Houses Insurance Companies

ENTREPRENEURSHIP & NEGOTIATION THREE MAJOR SCHEMES TO HELP BUSINESS START-UP’S: 1.The Business Start Up Scheme 2.The Loan Guarantee Scheme 3.The Business Expansion Scheme (established businesses only)‏

ENTREPRENEURSHIP & NEGOTIATION BUSINESS START UP SCHEME: Acceptance CriteriaSound Business Plan No need to be in employment No need to have own capital invested Benefits Payments up to £90 weekly Record to date 1992 onwards 40,000 annual applicants 50% Attrition Rates in 3 years

ENTREPRENEURSHIP & NEGOTIATION LOAN GUARANTEE SCHEME: Department of Trade & Industry (DTI) acts as guarantor Up to 70% of a bank loan guaranteed (new businesses)‏ 85% of bank loan guaranteed (existing businesses)‏ Loan maximum £100,000/£250,000 Repayment 2-7 years Interest Premium 0.5%-1.5% Record to date:Since 1994, £139m of loans advanced trough scheme covering 36,000 businesses

ENTREPRENEURSHIP & NEGOTIATION THE BUSINESS EXPANSION SCHEME Donors U.K. tax payers (40% tax deductable): TO QUALIFY Donors cannot be employees Equity ownership limited to 30% Minimum Investment £500 Maximum Investment £50,000 RECORD TO DATE £750m invested 4,000 small businesses created

ENTREPRENEURSHIP & NEGOTIATION GRANTS; Criteria for acceptance: Applicant are dependent or based on satisfying some or all of the following factors: 1. The area in which you intend to set up your business is an important factor. Most local governments are keen to rejuvenate run down localities such as inner city areas and under populated rural areas, particularly those that are suffering a net migration of the population.

ENTREPRENEURSHIP & NEGOTIATION GRANTS: Criteria for acceptance continued 2.With a general increase in unemployment your business is more likely to be eligible for a grant if it is going to create employment. 3.Many grants and schemes are related to quite specific business activities. You would be well advised to try and identify the national/local private body/department representing your type of business activity and check on the availability of grants. 4.Many governments are keen to promote the development of new businesses in manufacturing, using and selling technology. 5.A number of grants and schemes are aimed at specific groups of population: the disabled, the socially disadvantaged, ethnic minorities and the unemployed.

ENTREPRENEURSHIP & NEGOTIATION EQUITY FINANCE: Qualifies:individual or Partnerships Original owners Possible loss of control No finance repayable Equity holders entitled to proportion of any profits