Certain nursery businesses that are profitable but owned on a leasehold basis may find it difficult to obtain the necessary bank funding due to being able to offer insufficient security to their bank, namely the freehold interest in their nursery setting.
In these situations, it is worth considering obtaining finance via the Enterprise Finance Guarantee scheme.
The EFG is a government-sponsored initiative which aims to support financing requests for businesses with a turnover of up to £25m who are able to demonstrate that they are able to meet repayment terms, but do not have sufficient security to satisfy normal bank lending criteria. Loans secured under this scheme can be used for a variety of purposes, from providing funding for working capital needs to purchasing assets.
Under the scheme, you can borrow between £25,000 and £1m, with financing terms of up to ten years available provided that, where applicable, the term of the loan does not exceed the life of the asset to be purchased. Capital repayment holidays can also be considered in certain situations, such as where new nursery assets are being purchased which are expected to take a period of time to reach full occupancy and generate sufficient levels of profitability.
Once funding has been secured, the Government guarantees up to 75 per cent of the outstanding exposure post-realisation of any additional security provided. In return, you will be required to pay a 2 per cent quarterly premium to the Government over and above the normal bank lending fee and margin.
As part of the approval process, your bank will need to demonstrate to the Government that it has operated in accordance with their normal commercial lending procedures. You will be required to provide financial information to demonstrate that your proposal is viable, including a business plan with both historic and forecast financial performance. A personal guarantee will also need to be obtained if the bank would ordinarily have asked for this to be provided as part of its lending assessment process.