ahead. The proportion of fixed-rate loans has increased from a third of all term loans to around one in two. In some cases it may be possible to move between having a fixed interest rate and a variable one at certain intervals. It may even be possible to have a moratorium on interest payments for a short period, to give the business some breathing space. Provided the conditions of the loan are met in such matters as repayment, interest and security cover, the money is available for the period of the loan. Unlike in the case of an overdraft, the bank cannot pull the rug from under you if circumstances (or the local manager) change.
Just over a third of all term loans are for periods greater than 10 years, and a quarter are for 3 years or less.
Government backed finance
One of the most notable initiatives has been the Enterprise Finance Guarantee scheme (EFG), which has offered a total value of £1.88 billion to over 18,000 economically viable small businesses.
Although established small- and mid-sized companies have benefited the most from the scheme, start-ups in the first three years of business account for 37 per cent of all loans offered, with 17 per cent attributed to businesses within their first three months.
You can find more information on the Enterprise Finance Guarantee scheme on the GOV.UK website ( www.gov.uk/government/publications/enterprise-finance-guarantee ).
The Enterprise Finance Guarantee Scheme operated by the banks at the behest of the UK government is typical of such interventions. This is aimed at businesses with a turnover up to £25 million with viable business proposals that have tried and failed to obtain a conventional loan because of a lack of security. Loans are available for periods between two and 10 years on sums from £1,000 ($1,500/â¬1,126) to £1 ($1.5/â¬1.1) million.
The government guarantees 75 per cent of the loan. In return for the guarantee, the borrower pays a premium of 1â2 per cent per year on the outstanding amount of the loan. The commercial aspects of the loan are matters between the borrower and the lender. You can find out more about the details of the scheme at www.gov.uk/government/publications/enterprise-finance-guarantee .
Bonds, debentures and mortgages
Bonds, debentures and mortgages are all kinds of borrowing with different rights and obligations for the parties concerned. For a business a mortgage is much the same as for an individual. The loan is for a specific event: buying a particular property asset such as a factory, office or warehouse. Interest is payable and the loan itself is secured against the property, so should the business fail the mortgage can substantially be redeemed.
Companies wanting to raise funds for general business purposes, rather than as with a mortgage where a particular property is being bought, issue debentures or bonds. These run for a number of years, typically three years and upwards, with the bond or debenture holder receiving interest over the life of the loan with the capital returned at the end of the period.
The key difference between debentures and bonds lies in their security and ranking. Debentures are unsecured and so in the event of the company being unable to pay interest or repay loans they may well get little or nothing back. Bonds are secured against specific assets and so rank ahead of debentures for any payout.
Unlike bank loans, which are usually held by the issuing bank, though even that assumption is being challenged by the escalation of securitization of debt being packaged up and sold on, bonds and debentures are sold to the public in much the same way as shares. The interest demanded will be a factor of the prevailing market conditions and the financial strength of the borrower.
Categories of bond
There are several general categories of bond that companies can tap into:
Standard bonds pay interest, a coupon, half-yearly on the principal amount, known as the face or par value. At the
Just over a third of all term loans are for periods greater than 10 years, and a quarter are for 3 years or less.
Government backed finance
One of the most notable initiatives has been the Enterprise Finance Guarantee scheme (EFG), which has offered a total value of £1.88 billion to over 18,000 economically viable small businesses.
Although established small- and mid-sized companies have benefited the most from the scheme, start-ups in the first three years of business account for 37 per cent of all loans offered, with 17 per cent attributed to businesses within their first three months.
You can find more information on the Enterprise Finance Guarantee scheme on the GOV.UK website ( www.gov.uk/government/publications/enterprise-finance-guarantee ).
The Enterprise Finance Guarantee Scheme operated by the banks at the behest of the UK government is typical of such interventions. This is aimed at businesses with a turnover up to £25 million with viable business proposals that have tried and failed to obtain a conventional loan because of a lack of security. Loans are available for periods between two and 10 years on sums from £1,000 ($1,500/â¬1,126) to £1 ($1.5/â¬1.1) million.
The government guarantees 75 per cent of the loan. In return for the guarantee, the borrower pays a premium of 1â2 per cent per year on the outstanding amount of the loan. The commercial aspects of the loan are matters between the borrower and the lender. You can find out more about the details of the scheme at www.gov.uk/government/publications/enterprise-finance-guarantee .
Bonds, debentures and mortgages
Bonds, debentures and mortgages are all kinds of borrowing with different rights and obligations for the parties concerned. For a business a mortgage is much the same as for an individual. The loan is for a specific event: buying a particular property asset such as a factory, office or warehouse. Interest is payable and the loan itself is secured against the property, so should the business fail the mortgage can substantially be redeemed.
Companies wanting to raise funds for general business purposes, rather than as with a mortgage where a particular property is being bought, issue debentures or bonds. These run for a number of years, typically three years and upwards, with the bond or debenture holder receiving interest over the life of the loan with the capital returned at the end of the period.
The key difference between debentures and bonds lies in their security and ranking. Debentures are unsecured and so in the event of the company being unable to pay interest or repay loans they may well get little or nothing back. Bonds are secured against specific assets and so rank ahead of debentures for any payout.
Unlike bank loans, which are usually held by the issuing bank, though even that assumption is being challenged by the escalation of securitization of debt being packaged up and sold on, bonds and debentures are sold to the public in much the same way as shares. The interest demanded will be a factor of the prevailing market conditions and the financial strength of the borrower.
Categories of bond
There are several general categories of bond that companies can tap into:
Standard bonds pay interest, a coupon, half-yearly on the principal amount, known as the face or par value. At the
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