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Sharia Finance

Islamic finance is a market worth over £ 1 trillion and UK banks are keen to break into this marketplace.

Sharia finance is derived from the religious text of the Koran. It follows three basic rules:

  • Devout Muslims must not be involved with markets that are considered sinful, such as gambling, alcohol, tobacco, arms, cinema, pornography or anything to do with pig meat.
  • They must avoid taking risks, such as investing in hedge funds and spread betting
  • It bans the payment of interest. In other words you are not allowed to create money by money. This rule makes it hard to use Western banking products such as loans, mortgages and savings accounts.

What Government funds are available to SMEs to help growth?

There are a number of funding options that are sponsored by the Government through the Department for Business, Innovation and Skills (BIS).

Enterprise Finance Guarantee Scheme (EFG): The EFGS replaced the successful SFLG Scheme, it is a loan scheme that has been designed for SME’s that meet the criteria, to obtain loans even if they do not have any security to back the loan. The lender is provided with a 75% from the government. 45 approved lenders have signed up to the EFG programme. Be aware, however, that all lending decisions are made by the provider and not the government and many lenders are still asking for personal guarantees from the borrowers even though they have a 75% guarantee from the government. Loans are available from £1,000 to £1,000,000 for SMEs with turnover of less than £45m. It is important to understand that these are not the most popular type of loans with the banks, due to their risky nature.

Are Banks lending or not?

It is interesting to note that the traditional source of finance, the major high street banks, are complaining that they are not getting enough demand from small to medium sized companies, for the money that they have available to lend. The SMEs on the other hand are telling a different story and are complaining that the banks are just not lending. It is a confusing situation and as always there is some truth in both sides of the argument.

What is Crowdfunding?

Crowdfunding is an alternative method of raising finance for a business project. Unlike traditional angel investment, in which just a few people typically take a larger share in a business, with crowdfunding an entrepreneur can attract a ‘crowd’ of people, who may not have invested in shares before, each of whom takes a small stake in a business idea, by contributing towards an online funding target.

How to Write a Winning Funding Business Plan: Part 3 (Final) The Content

In part 3 of this series of blogs, I want to concentrate on the required content of each section of the plan. I will not talk about the Executive Summary or the Structure of a plan as this was discussed in part 2, last month. If you missed part 1 or part 2 please contact me and I will forward copies to you or click here to read part 1 and here for part 2.

How to Write a Winning Funding Business Plan

Part 2: Getting Started

This month’s blog is going to concentrate on how to get started when writing your funding business plan. Staring at a blank page and trying to get inspiration is often very daunting, especially as most people have never had to write a funding business plan before.

How to write a winning Funding Business Plan. Part 1: 10 common Mistakes

Writing a winning funding business plan is not that difficult as long as you understand what an investor or is expecting to see. There are 10 common mistakes that management teams make when writing a funding business plan.

With Banks not lending what alternative sources of funding are there?

This is the question that many SME’s are asking in ever increasing numbers. If the Banks will not lend to them who will? The answer is that there are many alternative sources of funding that many people are totally unaware of. There are even some products from main stream lenders that seem to be forgotten. Here are just a few examples, but remember these are ‘alternative’ sources and as such are more expensive than High Street lenders.

Why do so many British Companies ignore R & D Tax Credits?

The Government wants to give money back to British Companies that undertake research and development. Unfortunately many Managing Directors and Finance Directors and even their Accountants concentrate on the word ‘research’ and not on the word ‘development’ and so believe that this means that they will not qualify. In many cases this will not be true and so they are missing out on this very useful source of funding. If you are developing a new product or service, or making improvements to existing products and services you may very likely be eligible. Even software companies have been successful.

The scheme is designed to encourage and reward innovation. It allows innovative companies to either recover Corporation Tax paid and or receive a rebate of the NIC/PAYE generated by the business. Most first time claimants are able to also submit a claim for the last two completed year ends.
The average claim in the first year is £40k

How Important is the EIS Scheme in Raising Investment from Angels

My blog in April of this year entitled ‘Are Angels Alive and well in the UK’ resulted in me being asked questions about the EIS Scheme and how important that was.
The answer is simple, it is very important indeed.
Angels want to minimise risk as much as possible and the EIS Scheme provides them with a way to achieve this and an incentive to invest.
The EIS Scheme provides 5 ways of reducing risk:
30% Initial Income Tax Relief: If the qualifying investment is held for at least 3 years from date of issue, to a maximum of £500,000 per tax year. The relief is usually passed to the investor in the form of a tax rebate or by an adjustment in PAYE code. Actual cost of the investment is therefore only 70p in the £
No Capital Gains Tax is payable on disposal of the shares after 3 years as long as the initial EIS income tax relief was given and not withdrawn.

Should I buy, lease or use HP to obtain that needed addition equipment?

Over the years I have often been asked what is the difference between buying, leasing or using HP to obtain that needed extra piece of equipment. The answer really is different from one company to the next, but here are the general guidelines concerning how they are treated for accounting, Tax and VAT purposes.

Outright Purchase:

From an accounting viewpoint the actual cost of the asset is capitalised in the balance sheet and an annual charge for depreciation is shown in the accounts as an expense in the profit and loss account. This therefore has the effect of showing the asset(s) in the balance sheet at cost, reduced by the cumulative charge for depreciation.

The annual depreciation charge is calculated in accordance with accounting standards, based on the useful economic life of the asset and the residual value.

image creator: Rob Wiltshire

The actual charge for depreciation is not allowed for tax purposes, as this is replaced by capital allowances, which is HM Revenue & Customs deduction regime for allowing capital expenditure against chargeable profits. The first £50,000 of expenditure each year on plant and equipment, excluding cars, qualifies for a 100% capital allowance deduction. Expenditure in excess of £50,000 enters either the 10% pool or the 20% pool, attracting a writing down allowance (WDA) at the appropriate rate.

A temporary first year allowance of 40% is available for expenditure on plant and machinery that exceeds the annual investment limit incurred in the year commencing on 1 April 2009 (corporation tax) or 6 April 2009 (income tax). This allowance applies to expenditure which would otherwise have been allocated to the main 20 % pool but excluding cars and assets for leasing.

Unless the asset is a car, the VAT shown on the supplier’s invoice will generally be recoverable by the purchaser.  VAT on cars is recoverable only in very rare circumstances.

Hire purchase

A HP agreement usually includes an option to purchase at the end of an initial period. Payment of this nominal fee transfers title of the asset and brings the legal agreement to an end.

The asset is treated as if it had been purchased. It is, therefore, capitalised in the balance sheet and depreciation is provided on an annual basis.

The obligation to pay future instalments is recorded as a liability in the balance sheet.

Are Angels alive and well in the UK?

this post is by Peter Kelly


The answer is a resounding yes and they have become even more important with the Banks dragging their feet when it comes to lending to SMEs. I thought it might be interesting to share the following general statistics with you, concerning Angel Investment in the UK.

Last year Colin Mason (University of Strathclyde) and Richard Harrison (Queens University Belfast) completed their 102 page report on the state of the UK Angel Market. The report was compiled from 20 of the 24 Angel Networks that belong to the British Business Angels Association.

These are just a few of the findings:

  • The average mean investment was £192,634
  • 233 business received Angel funding
  • The average number of investors in each business was 2.5
  • The mean investment per investor was £77,053
  • Total UK investment was £63.8m
  • There are 5,500 registered Angels
  • Only 10% of all business plans ever get shown to investors
  • 58% of deals were funded by a single investor
  • 30% of deals had less than 3 investors
  • 8% of deals were for more than £500k


In another survey carried out by YFM companies that had successfully raised Angel funding gave their top tips on raising equity finance:


  • Bring in expert advice, not using advisors was a false economy
  • Consider equity as your first port of call, this will make it easier to attract Bank finance
  • Do not put all your financial eggs in one basket. The more channels of finance you have in your business the better
  • Talk to a number of funders to ensure you get the best fit for your company and always chose a proactive investor with an adventurous spirit
  • Raise more than you need. Think of raising finance as a way of building your company for tomorrow, not as a way of fixing today’s problems. Always mention upfront if you will need follow up funding.
  • Think about investors as not only providing money, chose the ones that can help you with strategy, contacts and new markets. Banks are only interested past performance and projections
  • Ensure that potential exit opportunities are flagged up and looked at as they arise and not in three years time
  • Always remember that raising finance takes longer than you think and will also be more costly than you planned

I Hate Invoice Discounting and Factoring!

This was a cry that I used to hear frequently from managing directors of SMEs. When I asked them why, it became clear that some were speaking from past experience and others just repeating what they had been told.

Why has one of the best and most useful forms of funding got such a bad reputation in some quarters? The answers date back from a few years ago and certainly pre-recession.  In those days the providers could pick and chose who they would do business with and were inflexible with their terms and companies were growing so fast that they needed this type of finance to avoid over-trading and were not particular about whom they obtained it from.