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Which way for businesses looking to expand?

PUBLISHED: 16:17 04 July 2012 | UPDATED: 21:35 20 February 2013

Which way for businesses looking to expand?

Which way for businesses looking to expand?

David Anderson, Partner at the Cheltenham office of Crowe Clark Whitehill, the national audit, tax and advisory firm, examines the best route to funding for local businesses looking to expand

Which way for businesses
looking to expand?

David Anderson, Partner at the Cheltenham office of Crowe Clark Whitehill, the national audit, tax and advisory firm, examines the best route to funding for local businesses looking to expand

It might not feel like it when your business has just been slapped with a hefty tax bill, but the UK is becoming a low-tax jurisdiction with a competitive top rate of corporation tax rate at 24% from April this year, which is due to be cut further to 22% from April 2014.

This rate is lower than in France, Germany, the Netherlands and Spain where top rate corporate tax rates are currently 33%, 33%, 25% and 30% respectively. Only Ireland, with its headline-grabbing rate of 12.5%, is lower and this rate has been described as the cornerstone of its economic policy, one that encourages inward direct investment.

The Chancellor has also pledged to support business innovation by increasing research and development tax credits, and by introducing a much-reduced 10% tax rate on income derived from products designed and patented in the UK, intending to stimulate economic growth. Although this is welcome, it is not likely to help local businesses with the immediate problem of raising growth capital.

There are some 2,000 manufacturing companies across Gloucestershire and Oxfordshire; only 24 of them employing over 500 people. This would suggest that most of the manufacturing output in the Cotswolds is produced by smaller companies or that most companies design in the UK and manufacture internationally. Nevertheless, all this could be about to change as the UK corporation tax rate tumbles and pay increases internationally along with the cost of shipping all of which could make UK-based manufacturing more competitive. Companies currently manufacturing internationally are starting to consider whether it might be worthwhile returning their facilities to the UK, a move that would boost employment and the local economy. Clearly they will need finance to do this and it is no secret that banks are now much tougher about lending.

Paradoxically, although we all want sensible lending and sensible risk, it is often risk that delivers the biggest rewards.

Fortunately, there are now more financing options opening up for businesses alongside the traditional overdraft and loan routes; although such choice and the number of providers can cause confusion in the search for what is best. A rapidly evolving product is invoice discounting, which is proving increasingly popular since it allows companies to borrow against their sales ledger, and confidential discounting means customers rarely know that such a facility is in place. More exotic perhaps is peer-to-peer lending which involves borrowing from large groups of people through bespoke exchanges. Corporate peer-to-peer lending is becoming increasingly popular in the USA and it is heading this way, particularly as returns on corporate cash balances are low.

Asset-based lending could be the answer for local businesses looking to acquire and invest in new machinery. Again, there are increasing numbers of players in the market, so shop around. Often an invoice discounting facility with the same provider may be a pre-condition.

The government has also recently established (with the backing of five of the largest UK banks) the Business Growth Fund (BGF) for companies seeking growth finance of between 2 million and
10 million. Good news for companies needing growth capital, however it comes with conditions that may not be suitable for some: part of the investment must be in the form of equity, and the BGF must have a seat on the board.

However, we should not overlook businesses that have managed to generate and conserve cash which is now sitting on their balance sheets. For them the issue is how to generate a better return from the cash earned. Many acquisitions are now financed by those funds therefore reducing the dependency on any other kind of funding.

What is right for your company will depend on many aspects. The most important factor for any local company is to ask around, talk to other business people and to take professional advice wherever possible.

To find out more about funding your business for growth, contact David Anderson, Partner at Crowe Clark Whitehill on 01242 234421 or email: david.anderson@crowecw.co.uk

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