Key fund pres garry brown 3 7 13

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Loan Finance - Social Investment •Considerations – applicant / funder •Components in an application •Decision process Wednesday 3 rd July 2013 Garry Brown

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Transcript of Key fund pres garry brown 3 7 13

Page 1: Key fund pres  garry brown 3 7 13

Loan Finance - Social Investment

•Considerations – applicant / funder•Components in an application•Decision process

Wednesday 3rd July 2013Garry Brown

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The Key Fund is Britain’s largest regionalCommunity Development Finance Institution (CDFI)

Specialists in the social economy market – balance commercial activity with social return

Leading provider of Social Investment in the North of England

Market leader in innovation

Professional, qualified and passionate

Remove barriers within Society & Financial Markets

About the Key Fund

Revolving Loan Fund

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Loan Purpose

Risk Perception

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Types of funding considered at various stages in the business life cycle

Seed capital (seed-corn) Concept / prototype DevelopmentMarket researchPre-launch activity

Start-upProduct development / initial marketingInitial Working capital or Asset Purchase

Early StageTrading Not yet profitable / breaking even

DevelopmentFunds for growth and expansionBreaking Even / Profitable

Very High RiskOwn moneyVenture Capitalist

High RiskDebt (Loan) FundingBanks / CDFI / Specialist

Term Loans >Private Investment >Venture Capital / Floatation

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High / High

Low / Low

HighRisk Pre –Start

Start-Up

Early Stage

Established

LowRisk

Fixed AssetAcquisition

WorkingCapital

Growth &Development

Low Risk

High Risk

Business Risk / Requirement Risk

Management / track record / resilience / cash contribution / security

Risk dimensions (1)

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Bank

Key Fund

HighRepayRate

SecuredLoans

UnsecuredLoans

Equity /PatientCapital

Grants

LowRepayRate

Fixed AssetAcquisition

Workingcapital

Growth &Development

Low Risk

High Risk

Risk dimensions (2)

Management / track record / resilience / cash contribution / security

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Secured Lending

Usually a formula used to determine the level of borrowing:

e.g.

•60 – 75% Loan to value (LTV) - underlying asset forms the security

•25% Loan to Value for HMO / Hotel used as hostels for the homeless

•Gross rental income to cover loan repayments by 130%

•Term of 15 – 25 years•Generally lower LTV & shorter term if high proportion of tenants on housing benefit – tenant quality…

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C

A

M

P

A

R

I

Lending Decision Criteria

CUSTOMER

ABILITY

MEANS

PURPOSE

AMOUNT

REPAYMENT

INTEREST

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LENDING DECISION CRITERIA…

CUSTOMER

ABILITY

MEANS

PURPOSE

AMOUNT

REPAYMENTS

INTEREST

Beneficial Owner / Legal Status / Board / Staff

Experience / Skills / Governance

Net Worth / Available Security

What will funds be spent on?

How much required? Enough? Other sources?

Is the loan affordable? Social Impact?

Can Vary with perceived risk?

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Why do businesses fail?•Overestimating income•Underestimating how long to achieve profitable trading•Underestimating costs•Failing to control costs ruthlessly•Losing control of cash… allowing customers too long to pay; paying suppliers to promptly•Failing to identify your market•Failing to adapt product to customer needs•Lacking appropriate/sufficient skills: selling & marketing, financial, production, technical•Failing to build a functioning team•Taking unnecessary risks•Under-pricing

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Why do businesses succeed?

•Quality of management: you and others•Experience in the chosen market and growth potential (idea/market)•Sufficient finance to meet working capital needs