Flowers…uncut

Posted by: Will – Priority Juggler on June 16th, 2008

We often get asked by friends and former colleagues who are thinking about setting up their own business for our top tips on fund-raising for start ups. We’re no experts so, rather than give exhaustive detail of what we’ve learnt here, we thought we’d share three avenues of government funding that we’ve found interesting and which potential/existing entrepreneurs might not be aware of. If you apply for any of them, good luck. We hope you’re successful and get to pose for one of those classic big cheque pics like we did. Here’s me and superstar Howard Beaumont of the Park Royal Partnership with our giganto-cheque:

Let’s start our list with the source of funding that yielded that happy mugshot:

1. The Park Royal Partnership

Arena Flowers is based in Park Royal, in West London, an area which has Europe’s largest concentration of businesses; Park Royal is home to over 2000 companies and over 40,000 employees. We chose to base Flowers HQ in Park Royal because of the excellent transport links and great business environment, plus because it’s an awful lot better value than swanky offices in central London (a saving which we can pass on to customers). One of the things we did before we signed up to our lease was to call in on the Park Royal Partnership (PRP). The PRP is a membership organisation founded in 1997 to regenerate and improve the Park Royal estate and Howard Beaumont, the PRP’s Business Development Manager, was incredibly helpful to us when we were setting up, providing employment support, introducing us to Prestat and their luxury hand made chocolates, and arranging for an environmental review of our business. Howard also let us know about a grant available to PRP members to support marketing programmes. Hence the giant cheque, which part-funded the branding of four of our delivery vans. Whilst Park Royal is unusually well supported as a result of the number of businesses based there, most areas of the UK have similar government-backed schemes and equivalent funding opportunities.

2. The London Development Agency

A case in point is the London Development Agency (LDA). They have a far wider remit than the PRP, and can support businesses based across the Greater London area. The LDA has recently been dragged into some tough PR to-ing and fro-ing as part of London’s recent mayoral election. We steer clear of politics on this blog but we’re pleased to say that our experience of the LDA has been overwhelmingly positive. In fact, without the support of David B and James S at the LDA, who helped us secure a “Selective Finance For Investment in England” grant, Arena Flowers simply wouldn’t exist. The essence of these government grants (also including the PRP award) is that applicants must demonstrate that the government funding will create new UK jobs. For our LDA grant, we needed to create 35 new jobs plus meet a capital expenditure target. Once that was achieved, the money was released. The level of any grant award is linked directly to the forecast capital expenditure figure (as a percentage of the capex). If I remember rightly, the % is capped at c 20%, in order to avoid healthy government support becoming anti-competitive government subsidy. Notably, the LDA can also assist businesses in the often expensive process of fund-raising through its Access To Finance grant. A fairly comprehensive list of funding available to businesses across the whole UK can be found on the government’s under-publicised Business Link website.

3. Small Firm Loan Guarantee

Arena hasn’t applied for a Small Firm Loan Guarantee (SFLG), though our very helpful Barclays bank manager, Alun, was kind enough to talk us through its ins and outs. The SFLG scheme is designed as a “lender of last resort” option for businesses that can’t secure funding from other sources. It’s a joint scheme by the government and SFLG approved lenders. Loans of up to £250k are available, with 75% of the loan guaranteed by the government and a maximum repayment period of 10 years for any approved loan. Repayment holidays will also be considered. There are certain qualification criteria, relating to age and turnover of the business, and it’s not particularly cheap (interest rate = Bank of England base rate + lender margin (typically 2%) + 2% guarantee fee), but it may well be cheaper than giving away a share of your business. Lenders are reputed to be fairly circumspect about approving such loans, despite the government guarantee, as, if banks are cavalier in their approach and approve dubious loans which fail and the government repeatedly has to pay out under its 75% guarantee, the government’s sense of humour failure is likely to be fairly titanic. Consequently, banks’ credit committees tend to be more interested in keeping on the right side of the British government than in putting additional small loans onto their books, meaning it can be quite hard work getting an SFLG approved. Apparently, the best tactic is to go to your bank’s competitors and say “If you get my SFLG approved, I’ll switch my banking to you”. Banks are reputed to be much more likely to approve an SFLG if they can win new business through the approval.

And that’s it for this post. There are obviously lots of other sources of finance, in particular business angels and venture capitalists / private equity, all of which are well covered on non-flower blogs. But there’s nothing a young business welcomes more than (sort of) free money from the government. Good luck with securing it!

PS if you’ve read this far, 1. well done!, 2 thank you!, and 3. here’s a nice random factoid for you, to reward your diligence. The image in para 3 shows the Bank of England. In my former career I walked past “The Old Lady of Threadneedle Street” daily for 5 years but it was only after I moved on that I learnt that it has no adjoining buildings and no windows on the ground floor. The reason? So that any ambitious ne’er-do-wells find it mighty hard to purloin the large piles of gold bullion stored therein. Still, one of my ancestors was Captain Blood, who famously failed to steal the Crown Jewels, so I wouldn’t fancy my chances of success even if the whole ground floor were made of tracing paper. I’m happy sticking to points 1-3 for Arena’s funding and focusing my efforts helping people send beautiful fresh flowers to their nearest and dearest. :)

PPS clearly, we are a flowers business, not a corporate finance house. Please do not rely on the information in this post in your decision making process and do seek your own, professional advice before making any funding decisions!

Filed under: Finance & Investment, Setting up, Start up on June 16th, 2008

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