John asks: My colleague and I were both made redundant last year, with 25 years experience as Engineering Recruitment Consultants in London. Over the years we have both either project-managed or hands-on built/extended residential property on at least six new builds/extension projects. We have now decided to establish a business based on this and enter the property refurbishment market full time.
We are both in our 50′s with substantial equity in our own properties but having problems raising money to purchase our first project.
Having been made redundant over 6 months ago, we are unable to show earnings, which is a requirement to draw on our equity. The banks will only lend if we come up with 40 per cent – which is not possible unless we can use the equity built up!
Any ideas? We are considered extremely competent, professional and perfectionists but not to an extent that it would affect earning levels!
Robert replies:
It’s always difficult to win over lenders, even when it’s your own equity securing the loan. Have you considered moving to one of the growing number of ‘boutique banks’ such as Handelsbanken? They delegate decision making to branch manager level and so can work around the rules that are holding back your present lender.
Robert Ashton is a popular business speaker and runs ‘Business Boot Camps’ for entrepreneurs seeking growth
John replies:
Maybe friends or family who know you, like you and trust you will invest or lend you money using your property equity as collateral?
When raising finance your starting point should be a good and robust business plan. Although it may seem tedious to provide, it will stand you in good stead when financiers are summing up your business prospects. A good template and advice is available from www.businesslink.gov.uk.
Your first port of call could be friends and family who would invest in a Limited Company under the Enterprise Investment Scheme (EIS). Shares can be sold to investors and 20 per cent of the investment can be claimed back against any tax liability for the tax year or previous tax year. Therefore an investment of say £10,000 will only cost the investor £8000. Shares should be held for 3 years and if you wish you can include a buy-back option after 3 years.
If the shares lose value the loss can be set against any income and also any capital gain on another venture can be deferred if reinvested into an EIS. You have 3 years to defer the gain. Dividends are payable in the usual way. This scheme can make it ideal for the smaller investor.
Another source of finance is the Business Angel who would purchase shares, share in any dividends and have the advantage of not charging any interest. If you link up with a Business Angel you could be eligible to have the funds matched by the Government under the Enterprise Capital Funds Scheme.
Business Angels can often make a decision quickly without the need for complex assessments and bring valuable experience to the table. A disadvantage is that it can take months to find and track down the right investor. Business Angels do invest individually but typically as part of a syndicate.
You can find a BA by contacting the BBAA Association at www.bbaa.org. The BBAA have 24 Business Angel Networks and 30 professional advisory businesses.
The government operates the Capital For Enterprise Fund providing long term capital for Companies who can demonstrate that they have exhausted borrowing capacity. However, my experience is that the cost of providing this capital together with management fees makes it prohibitive. There are also very stringent requirements with regard to financial provision to include extensive profit and loss and cash flow forecasting spreadsheets.
It is always worth contacting your local Business Link to get advice and it is likely they will be aware of any local form of finance.
Lastly, I wonder if you have considered forming a partnership with an established property developer on the basis that you provide the expertise and he provides the start-up capital.
