3.5.1 Given the dominance of finance as a factor preventing companies from pursuing their objectives prior to receiving Smart/GRD support, it is interesting to examine whether and to what extent companies had done to try to obtain alternative and additional finance to enable their projects to happen.
Alternative funding
3.5.2 Table 3.17 shows that little more than a quarter of overall, but a slightly larger proportion of very small companies and GRD award winners, had applied for funding other than a Smart/GRD award before undertaking their project.
Table 3.17 Before applying for a grant from the scheme, did you seek alternative funding (i.e. instead of, not as well as a GRD award) to enable you to undertake your project?
Type of grant Size of company Scheme Total Micro Feas/
resch Devel/
excep
1-9 10-49 50+ Smart GRD
Yes 28 23 28 30 31 16 22 24 35
No 65 71 65 63 63 77 65 67 62
Don't recall 7 5 7 7 6 7 14 8 3
Effective Sample Size 461 76 234 155 326 94 20 269 208 A number is shown in bold where, taking into account the margin of error due to sampling, we are 95%
certain that it is different from the number in the left hand total column (using a Chi-Squared statistical test) Source: PACEC Survey (Q17)
3.5.3 3.5.3 indicates that, where alternative funding had been sought, a bank loan was most frequently the source. However, venture capital, other public funding, money from family/friends and bank overdrafts were also explored relatively frequently.
There was little variation in this pattern according to type of award, size of company or scheme. The only Other RDA / public sector scheme mentioned more than once was the TSB technology programme.
Table 3.18 (Only if alternative funding sought) What type(s) of alternative funding did you seek?
Type of grant Size of company Scheme Total Micro Feas/
resch Devel/
excep
1-9 10-49 50+ Smart GRD
Bank loan 28 39 29 23 28 25 52 33 21 Venture capital finance equity / share
capital 16 16 17 14 18 9 0 13 20 Other RDA / public sector funding 15 15 16 15 17 14 0 19 10 Money from family / friends 13 13 14 10 15 5 0 10 16 Bank overdraft 10 11 9 10 8 11 32 9 11 Venture capital finance loan 7 10 5 10 7 9 22 5 10 Other businesses: equity / share capital 6 2 10 3 7 6 0 7 5 Business angel finance: equity / share
capital 5 2 7 1 5 0 0 1 9
Business angel finance: loan 5 5 2 10 6 2 0 4 6 Bank loan with Small Firms Loan
Guarantee 2 4 0 5 1 13 0 2 3
Other businesses: loan 2 0 1 4 1 6 0 1 3 Hire purchase / lease finance 0 0 0 2 0 4 0 0 1 Trade credit (from suppliers /
customers) 0 0 0 0 0 0 0 0 0
Other(s) 16 14 11 26 16 7 46 11 23 None of the above 4 2 6 2 3 0 0 4 4 Effective Sample Size 136 31 64 47 106 17 3 68 70 Respondents could select more than one option; so percentages in any column may sum to more than 100 A number is shown in bold where, taking into account the margin of error due to sampling, we are 95%
certain that it is different from the number in the left hand total column (using a Chi-Squared statistical test) Source: PACEC Survey (Q18A)
3.5.4 Table 3.19 reveals that the search for alternative funding was often unsuccessful in that businesses were not offered it.9 Forty two percent of those who sought alternative funding received no offer of finance. A comparison of the numbers in this table and Table 3.18 reveals that few of those who sought a bank loan or overdraft were offered one, although micro award winners were more successful in this respect. However, the majority of those who sought venture capital, other public sector funding or money from family/friends were made an offer. The numbers also indicate that GRD companies who sought venture capital were more successful than Smart companies who did the same, which possibly reflects a growth in the availability of venture capital funds over the policy period and the willingness to make investment.
Table 3.19 (Only if alternative funding sought) What type(s) of alternative funding were you offered?
Type of grant Size of company Scheme Total Micro Feas/
resch Devel/
excep
1-9 10-49 50+ Smart GRD
None 42 22 50 38 38 49 77 54 26
Venture capital finance equity / share
capital 11 6 13 11 12 10 22 7 17 Other RDA / public sector funding 11 14 12 8 13 4 0 13 8 Money from family / friends 10 11 10 9 12 6 0 8 12 Bank loan 8 28 5 4 9 0 22 6 11
Bank overdraft 4 8 4 2 4 6 2 2 8
Other businesses: equity / share capital 4 2 5 3 5 0 0 4 3 Business angel finance: equity / share
capital 4 2 7 2 5 0 0 1 9
Business angel finance: loan 4 3 2 8 5 0 0 3 4 Venture capital finance loan 4 10 2 3 3 10 0 3 5 Bank loan with Small Firms Loan
Guarantee 2 4 0 3 1 8 0 1 2
Other businesses: loan 1 0 0 4 1 6 0 0 3 Hire purchase / lease finance 0 0 0 2 0 4 0 0 1 Trade credit (from suppliers /
customers) 0 0 0 0 0 0 0 0 0
Other(s) 11 11 7 18 12 3 0 3 22 Effective Sample Size 132 31 64 47 104 15 3 67 70 Respondents could select more than one option; so percentages in any column may sum to more than 100 A number is shown in bold where, taking into account the margin of error due to sampling, we are 95%
certain that it is different from the number in the left hand total column (using a Chi-Squared statistical test) Source: PACEC Survey (Q18B)
3.5.5 Table 3.20 shows that, overall, almost half of the offers made were not accepted. In combination with Table 3.19, it also indicates that acceptance rates did not vary greatly according to type of grant, size of company and type of scheme.
3.5.6 Amongst those who did not accept offers of alternative finance, just over a quarter (27%) wanted to remain independent, and a quarter found the offer terms were unsatisfactory (which could include the costs and repayment terms). They potentially could lose an element of control, potentially for example, through a release of equity and/or an influence on their decisions. This indicates a potential reason for the
Table 3.20 (Only if alternative funding sought) What type(s) of alternative funding did you accept?
Type of grant Size of company Scheme Total Micro Feas/
resch Devel/
excep
1-9 10-49 50+ Smart GRD
None of the above 45 28 53 41 41 49 98 56 31 Other RDA / public sector funding 11 14 12 8 14 4 0 14 8 Money from family / friends 10 11 11 9 12 6 0 8 12 Venture capital finance equity / share
capital 9 5 10 9 10 10 0 6 13
Other(s) 9 9 5 18 10 3 0 1 21
Bank loan 7 27 4 2 8 0 0 6 9
Business angel finance: equity / share
capital 5 2 7 2 5 0 0 1 9
Bank overdraft 4 7 4 2 3 6 2 1 8
Other businesses: equity / share capital 4 3 5 3 5 0 0 4 3 Business angel finance: loan 4 3 2 8 5 0 0 3 4 Venture capital finance loan 4 11 2 3 3 10 0 3 5 Bank loan with Small Firms Loan
Guarantee 1 3 0 3 0 8 0 1 2
Other businesses: loan 1 0 0 4 1 6 0 0 3 Hire purchase / lease finance 0 0 0 2 0 4 0 0 1 Trade credit (from suppliers /
customers) 0 0 0 0 0 0 0 0 0
Effective Sample Size 130 32 61 47 102 15 3 65 70 Respondents could select more than one option; so percentages in any column may sum to more than 100 A number is shown in bold where, taking into account the margin of error due to sampling, we are 95%
certain that it is different from the number in the left hand total column (using a Chi-Squared statistical test) Source: PACEC Survey (Q18C)
3.5.7 Table 3.21 shows that, amongst the majority of firms that did not seek alternative funding for their projects, the most common reason (especially amongst those running development projects) was the ability to manage without other finance. This response suggests that these firms were confident of obtaining Smart/GRD funding and had tailored their requirements and costs to fit the grant thresholds and what they could match. Substantial proportions of firms were unaware of other sources of finance which indicates that information failure was problematic, or they wanted to stay independent for a small proportion (12%) of businesses. See para 3.3.6 above.
The cost and risk of finance, and previous difficulties were also issues for some firms.
Most of the firms that responded ‘Other’ to this question went on to explain that a grant was their first or preferred choice of funding and that, for many, they did not think they would obtain the alternative finance. Where they obtained it, it helped to
Table 3.21 (Only if alternative funding not sought) Why did you not seek alternative funding to enable you to undertake your project?
Type of grant Size of company Scheme Total Micro Feas/
resch Devel/
excep
1-9 10-49 50+ Smart GRD
Able to manage without other finance 27 34 21 37 26 34 20 25 33 Not aware of any sources of finance 16 12 19 12 15 17 4 16 15 Wanted to stay independent 12 21 6 18 12 13 10 8 22 High cost of finance 8 4 11 5 8 10 5 10 6 The funding was too risky 6 6 5 6 5 4 11 5 6 Previous difficulties in obtaining finance 5 9 3 5 7 0 0 2 9 Unsatisfactory terms were likely 2 2 3 0 3 2 2 2 2
Other 36 31 42 25 37 29 64 41 24
Effective Sample Size 282 42 151 92 184 73 13 173 121 Respondents could select more than one option; so percentages in any column may sum to more than 100 A number is shown in bold where, taking into account the margin of error due to sampling, we are 95%
certain that it is different from the number in the left hand total column (using a Chi-Squared statistical test) Source: PACEC Survey (Q20A)
Additional funding
3.5.8 Just as Table 3.17 showed that a small minority of firms (28%) had sought alternative funding for their projects, Table 3.22 shows that a small minority (24%) sought additional finance to enable them to undertake their projects. As was the case with alternative finance, GRD award winners were more likely than Smart award winners to seek extra funding.
Table 3.22 In conjunction with the grant you received, did you seek
additional funding (i.e. as well as a GRD award) to enable you to undertake your project?
Type of grant Size of company Scheme Total Micro Feas/
reschDevel/
excep 1-9 10-49 50+ Smart GRD
Yes 24 26 20 29 25 18 26 20 31
No 70 72 73 66 71 74 54 73 65
Don't recall 6 2 8 5 4 9 20 7 4 Effective Sample Size 447 72 228 153 314 94 20 265 204 A number is shown in bold where, taking into account the margin of error due to sampling, we are 95%
certain that it is different from the number in the left hand total column (using a Chi-Squared statistical test)
bank loans were especially important for micro award winners seeking additional finance, while family and friends were especially important to very small firms.
Table 3.23 (If additional funding sought) What type(s) of additional funding did you seek?
Type of grant Size of company Scheme Total Micro Feas/
resch Devel/
excep
1-9 10-49 50+ Smart GRD
Other RDA / public sector funding 20 18 25 13 18 33 31 22 16 Bank loan 17 34 6 23 17 14 17 14 20 Bank overdraft 12 14 9 15 9 17 50 15 8 Money from family / friends 11 11 16 3 13 0 0 10 11 Venture capital finance loan 9 5 8 12 8 4 19 7 11 Venture capital finance equity / share
capital 8 3 12 5 9 0 0 8 8
Other businesses: equity / share capital 7 2 7 7 6 14 0 8 5 Other businesses: loan 4 1 3 6 4 5 0 5 3 Business angel finance: equity / share
capital 4 3 4 4 5 0 0 3 5
Business angel finance: loan 4 9 3 2 4 0 2 4 4 Bank loan with Small Firms Loan
Guarantee 3 2 6 0 3 7 0 5 1
Trade credit (from suppliers /
customers) 3 0 2 7 3 7 0 4 2
Hire purchase / lease finance 0 0 0 1 0 4 0 0 1 Other(s) 15 11 12 21 17 7 0 13 18 None of the above 4 3 4 4 3 5 0 2 6 Effective Sample Size 118 16 54 51 90 17 4 61 57 Respondents could select more than one option; so percentages in any column may sum to more than 100 A number is shown in bold where, taking into account the margin of error due to sampling, we are 95%
certain that it is different from the number in the left hand total column (using a Chi-Squared statistical test) Source: PACEC Survey (Q22A)
3.5.10 Table 3.24 implies that firms seeking additional funding were about twice as likely as firms seeking alternative funding to receive an offer: 20% of those seeking additional finance received no offer, but 42% of those seeking alternative funding had the same outcome (Table 3.19). In conjunction with Table 3.23 it also suggests that requests for other public finance, a bank overdraft and money from family/friends were almost always successful, and that request for bank loans and venture capital were successful more often than not. The implication here is that the GRD award provides businesses with some credibility. Some 48% of businesses said that GRD funding made it easier for them to obtain other finance (see Table 4.12). Also there were
Table 3.24 In each case, were you made an offer of funding?
Type of grant Size of company Scheme Total Micro Feas/
resch Devel/
excep
1-9 10-49 50+ Smart GRD
Other RDA / public sector funding 17 18 20 10 16 19 37 18 14 Bank overdraft 11 11 8 14 8 13 60 14 6 Money from family / friends 10 11 16 2 13 0 0 9 11 Bank loan 10 12 2 19 10 14 0 9 10 Venture capital finance equity / share
capital 6 2 8 6 7 0 0 6 7
Venture capital finance loan 6 3 5 8 6 4 3 4 8 Other businesses: equity / share capital 4 0 3 8 5 0 0 6 3 Business angel finance: equity / share
capital 4 3 4 4 5 0 0 3 5
Bank loan with Small Firms Loan
Guarantee 3 2 5 0 2 7 0 5 1
Trade credit (from suppliers /
customers) 3 0 2 7 3 7 0 4 2
Other businesses: loan 3 1 3 5 4 5 0 5 2 Business angel finance: loan 3 9 1 2 3 0 3 2 5 Hire purchase / lease finance 1 0 0 1 0 4 0 0 1 Other(s) 14 7 12 22 16 7 0 13 17 None of the above 20 32 22 11 17 33 0 16 24 Effective Sample Size 115 16 52 47 89 17 3 61 54 Respondents could select more than one option; so percentages in any column may sum to more than 100 A number is shown in bold where, taking into account the margin of error due to sampling, we are 95%
certain that it is different from the number in the left hand total column (using a Chi-Squared statistical test) Source: PACEC Survey (Q22B)
3.5.11 3.5.11 indicates that almost all offers of additional finance were accepted. The small number of firms that did not accept offered most often explained that they wanted to remain independent, found the offer terms unsatisfactory, or were not offered enough money (Table 3.26).
Table 3.25 (If an offer of additional finance made) Did you accept it?
Type of grant Size of company Scheme Total Micro Feas/
resch Devel/
excep
1-9 10-49 50+ Smart GRD
Other RDA / public sector funding 16 18 19 11 15 19 33 18 14 Other(s) 15 10 12 23 17 11 0 14 18 Bank overdraft 11 11 8 13 8 13 50 14 6 Money from family / friends 10 9 16 2 13 0 0 10 10 Bank loan 10 12 2 21 10 14 17 10 11 Venture capital finance equity / share
capital 6 2 8 6 7 0 0 6 7
Venture capital finance loan 6 3 5 10 6 4 19 4 10 Other businesses: equity / share capital 4 0 3 8 6 0 0 6 3 Business angel finance: equity / share
capital 4 3 4 4 5 0 0 3 5
Bank loan with Small Firms Loan
Guarantee 3 2 5 0 2 7 0 5 1
Trade credit (from suppliers /
customers) 3 0 2 7 3 7 0 4 2
Other businesses: loan 3 1 3 5 4 5 0 5 2 Business angel finance: loan 3 7 1 2 2 0 2 2 4 Hire purchase / lease finance 1 0 0 1 0 4 0 0 1 None of the above 19 31 22 9 18 28 0 15 24 Effective Sample Size 114 16 52 49 87 17 4 62 56 Respondents could select more than one option; so percentages in any column may sum to more than 100 A number is shown in bold where, taking into account the margin of error due to sampling, we are 95%
certain that it is different from the number in the left hand total column (using a Chi-Squared statistical test) Source: PACEC Survey (Q22C)
Table 3.26 If any offers were not accepted in previous Q, why did you not use the alternative funding you were offered?
Type of grant Size of company Scheme Total Micro Feas/
resch Devel/
excep
1-9 10-49 50+ Smart GRD
Not enough money was offered 18 0 53 0 29 0 0 47 0 Unsatisfactory terms were offered 24 0 47 14 18 59 0 35 18 The funding was too risky 0 0 0 0 0 0 0 0 0 Wanted to stay independent 37 50 0 57 34 5 100 19 49
Other 21 50 0 28 20 36 0 0 33
Effective Sample Size 11 5 4 8 7 2 1 3 8 Respondents could select more than one option; so percentages in any column may sum to more than 100 Source: PACEC Survey (Q23A)
3.3.4). The table also shows that a significant minority of GRD award winners did not seek additional finance because they wanted to remain independent.
Table 3.27 (If additional finance not sough) Why did you not seek alternative funding to enable you to undertake your project?
Type of grant Size of company Scheme Total Micro Feas/
resch Devel/
excep
1-9 10-49 50+ Smart GRD
Able to manage without other finance 71 77 71 65 73 69 65 76 59 Wanted to stay independent 10 12 7 15 10 10 7 7 17 Not aware of any sources of finance 8 9 8 6 8 5 4 8 6 High cost of finance 6 1 9 3 6 8 6 6 6 The funding was too risky 3 2 4 3 3 3 6 3 5 Previous difficulties in obtaining finance 2 0 1 3 2 1 2 1 3 Unsatisfactory terms were likely 2 2 2 1 2 0 9 1 4
Other 10 7 10 13 10 10 21 9 14
Effective Sample Size 300 54 160 89 208 63 13 181 142 Respondents could select more than one option; so percentages in any column may sum to more than 100 A number is shown in bold where, taking into account the margin of error due to sampling, we are 95%
certain that it is different from the number in the left hand total column (using a Chi-Squared statistical test) Source: PACEC Survey (Q24A)