Debt (or Loans)
Types
'Regular' institutional loan - from banks etc. A loan is advanced for a specific purpose and is repayable over a fixed period at a fixed or variable rate. The maximum loan amount will be based on available security (often personal) and the ability to 'service' (pay) interest and capital repayments. It may be possible to negotiate stepped payments and capital repayment holidays. The lender will want to see credible financial forecasts especially cash flow projections. Access may be helped by the Government-backed Small Firms Loan Guarantee - see below.
'Soft' loans - from Government/European sponsored funds - a number of loan funds have been established, financed by a mix of public and private money, to help certain defined industry sectors or UK regions. These loans are usually unsecured, and the terms are often easier than regular loans. Providers include -
• South West Investment Group (SWIG) - including The Phoenix Fund - see SWIG summary
Mezzanine funds - available from various sources including banks, venture capital firms and specialist mezzanine loan providers. This type of debt sits between equity and regular loans (hence the name). The loan is unsecured, and in return for the increased risk the interest rate will be higher and typically the lender will require the right to buy shares in the company on favourable terms (known as 'equity kicker', warrants, or share options). Mezzanine finance is often used for 'leveraged buy outs', where most of the purchase price of a business is funded by debt, and a small part by equity, so that when the loan is repaid the shareholders are left with 100% ownership at a relatively low cost. See Finance Cornwall summary as an example of a mezzanine fund.
Small Firms Loan Guarantee - Currently suspended and superseded by the Enterprise Finance Guarantee - see http://www.berr.gov.uk/whatwedo/enterprise/enterprisesmes/info-business-owners/access-to-finance/sflg/page37607.html