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Finance and funding

 

Finance and funding

This section contains:


Introduction

Nature of money


Borrowing money


Government and other financial assistance


Equity funding

Charity and voluntary sector finance and funding

 

Introduction

This section is intended to provide a brief overview of sources of finance for a business, mainly from the point of view of the owner or manager of an SME. In view of the purpose of the Legaleze site, these notes are written primarily from a legal perspective rather than financial.

We cover information and advice on sources of finance for business such as borrowing from banks and other lenders, alternative lenders, government guarantee scheme and other government financial assistance and grants, equity funding from venture capital, business angels and private investors, regulation of financial promotions and prospectuses.

Legal nature of money

There is remarkably little law regulating money in the sense of cash (coins and notes); see for example: Legal tender

The provision of electronic money is a regulated activity under the Financial Services and Markets Act 200; see Financial services

What’s New items on this topic [go to the What's New page or archive for the full item]:

04/03/2014: Revenue & Customs Brief on tax treatment of Bitcoin and similar cryptocurrencies
HMRC has published a brief setting out its position on the tax treatment of income received from, and charges made in connection with, activities involving Bitcoin and other similar cryptocurrencies, specifically for Value Added Tax (VAT), Corporation Tax (CT), Income Tax (IT) and Capital Gains Tax (CGT).

Borrowing money


The need to borrow money for business purposes may arise in various circumstances. Typically these will include an individual borrowing to start up a business or an individual or company borrowing to fund working capital, the acquisition of a business franchise, an existing business or business premises.


The legal basis for any loan is a contract between the lender and borrower. From the point of view of the lender if not the borrower as well, the loan contract should be in writing. The exact wording will depend upon the purpose and structure of the loan, the borrower’s circumstances and the practice of the lender.

The main types of loans may be categorised broadly as follows:

  • Overdraft
  • Term loan
  • Revolving credit facility
  • Invoice factoring and discounting
  • Asset finance
  • Commercial mortgage
  • Debentures

Security and personal guarantees


Banks and other lenders will usually require some form of security for lending to SMEs. From the lender’s point of view, the best security will be a first mortgage on real property; otherwise, the lender may well require personal guarantees from one or more of the directors and shareholders of the borrower.

Read more: Borrowing money

Government and other financial assistance


GOV.UK has a section on finance and support for your business, and provides an “interactive tool” to help choose and secure the right finance options.

 

Government guarantee schemes
If you or your business are not able to provide a lender with sufficient security, you may be entitled to a government backed guarantee under the Enterprise Finance Guarantee scheme or the Export Enterprise Finance Guarantee.

Government grants and assistance


Some government and local authority grants are available for individuals intending to start up a business and existing SMEs, usually in particular localities or business areas.
Further information on government assistance is available from GOV.UK as noted above.

Proposals to provide voluntary, community and social enterprise (VCSE) organisations with the support they need to plan for the long term and begin to move to sustainable business models are being consulted on by the Cabinet Office. The fund will only be available to VCSE sector organisations in England, with devolved administrations in Scotland, Wales and Northern Ireland responsible for related policy in their areas. Applications can be made in 2015 and the consultation will run until 24 July 2014.

j4bGrants is a site dedicated to providing a funding information portal for UK small businesses or businesses looking to move to the UK.

Read more: Government and other financial assistance

Equity funding


Any business is on a more secure financial foundation if it has funding sourced from permanent capital as distinct from borrowed money which must be repaid and until repaid carries interest.

What is permanent capital?


In its broadest sense, permanent capital is the money invested by the proprietors of the business to enable it to start trading, to provide working capital or funds to buy assets or expand the business. This applies whichever legal form the business takes, e,g. a sole trader, partnership or limited company.

Read more: Equity funding

Charity and voluntary sector finance and funding

This topic is dealt with separately under Charity and voluntary sector

[Page updated: 11/05/2014]

 

More information>


Borrowing


Government financial assistance


Equity fundingCharity and voluntary sector