Swoop Suplement 2024

Funding your SME: how to survive the recession, grow your business and boost your cashflow

moments and provide backup in the form of human advisors – was by no means fully formed at this stage. A visit to Downing Street, this time when David Cameron was in charge, helped push the idea forward in 2016.

Utilising her talents as an auditor, she’d researched the UK’s system of awarding grants “and I discovered a lot of things that were going wrong”. As it turned out, 71% of businesses had never applied for grants, and funds that had been allocated hadn’t been distributed. “It was costing the government almost £1 million pounds per job created,” she says.

“I got an opportunity to present that in Downing Street and they said, ‘This is a great piece of research. If you could build something to solve a lot of these problems, that would significantly help UK SMEs.’ I got a lot of confidence from that, and then I decided to build a prototype.”

Potential customers responded warmly. At the same time, developments such as open banking, cloud accounting and the ability to pull data from Companies House made the concept even more compelling.

“My prototype was built before open banking launched in 2018, but what open banking is doing is really significantly improving the experience,” says Andrea. “It’s speeding up the ability to get financed. It is being used more and more by lenders to actually make lending decisions, and so it truly is digitising a lot of what was a manual process.

“It’s also giving back insights to business owners on what lenders are looking at. Rather than you waiting to hear what the lenders think of your

Not every business can afford a corporate finance advisor and I just thought, ‘This model is a bit skewed.’

bank statements and what’s going on, we return that information to you, so you start to think like a lender and you start to think like a funder. You’re not intimidated by the process of when and how to go for funding. It’s a very powerful tool.”

A great deal of credit

When Andrea started her corporate finance firm, funding options were limited to high street banks and a tiny number of asset finance and invoice finance providers. “That was it. That was the market. Now you have hundreds of providers.”

She reels off several examples –fixed-term loans for three or six years, asset finance that ranges from £100 to millions of pounds – and discusses a newer innovation, revenue-based financing. “If you get your sales through credit card terminals or through your ecommerce platform, they will give you a loan and they will just deduct a percentage off your sales until it is repaid. If you have a bad month of sales, they’re only taking a small percentage of your sales from that month – so, lots of flexibility.

“The UK has the largest business finance market in the world outside of the US. Even with the volatility in the market, there is still a lot of credit to be distributed. That is the fundamental difference between the financial crisis we’re going through and the 2008 recession. In 2008, there was no liquidity in the market, no finance available whatsoever for businesses. This time around there is.

“It’s a very different crisis. It’s an energy crisis. It’s a supply chain crisis. It’s inflation. But it’s not a liquidity crisis.”

We were able to get them not just the private finance for the plant, but we married it with a grant as well

The nuts and bolts

In practical terms, then, how do small business owners use the Swoop platform?

“They come on and they build their profile like it’s LinkedIn,” says Andrea.

“Just from you putting in your company name, we have pulled your data from Companies House, so you don’t have to go there and download the files and then pass them over to a lender. We’ve done that heavy lifting for you.

“Then we need you to tell us more about the finances of the business. Rather than filling out a long form, you can log in and allow us to pull the data from your cloud accounting software. We’re then able to produce the set of accounts immediately that the lenders want to see.”

Likewise, to save you the bother of downloading bank statements for the lender to look at, you can log into your bank account and give Swoop the read access to pull that data immediately.

“Within minutes, we are matching that against the lending criteria of lenders, of grant agencies that have grants available, etc. And we are saying to you, based on your numbers and your profile, here are the products that you are currently eligible to apply for, here are the amounts that you

could apply for and here’s the typical cost of that finance.”

A further advantage is that all your details are now stored on Swoop’s system. This means that if you want to apply to Bank A, then decide you’d rather approach Bank B, the process won’t be remotely difficult or drawn out.

“Alongside that, we have a team of experts that talk you through the next stages – why you should consider one over the other – so you make a very informed decision,” says Andrea. To be clear, Swoop makes its money from the providers, not the SMEs seeking funds. “We all know that when we take out a mortgage or a loan, whether it’s business or personal, there’s an arrangement fee. Providers now share that fee with platforms like Swoop, because we have done a lot of the work for them. We’ve basically lightened their load.”

Success stories

Swoop is going from strength to strength, but the most satisfying part of running it is seeing the profound difference it makes to SME owners’ lives.

“An example that really sticks out was when a fantastic business suddenly wasn’t paid by their largest

customer,” says Andrea. “It was coming to the end-of-month payroll, [the boss] didn’t have the cash to meet it, and we were able to get him an immediate cash injection into the business, an immediate loan.”

“He left us a message saying, ‘All of my employees have gone home tonight not realising how much stress I was under to meet that payroll. Thank you for saving not just me, but my employees this month.’”

Another business won a massive contract that meant it had to build a new plant in northern England. “We were able to get them not just the private finance for the plant, but we married it with a grant as well, which significantly reduced the project cost and the cost of the entire fit-out for the factory,” says Andrea.

“In general, we see businesses from startups, right through their growth, and we’ve had known brands like Nimble Babies [which makes childfriendly cleaning products] and Holy Moly Guacamole. If you walk into any supermarket today, you will see them on the shelves.

“We help them from getting the first production run done to seeing them grow spectacularly across the country, year on year. That’s something I’m incredibly proud of.” Happily for its 80 staff, Swoop itself is a standout Swoop success story, growing 450% in the past year alone. The firm, based in London, Dublin, Toronto and Sydney, describes itself as its own best case study, drawing on grants, borrowing, R&D tax credits and, recently, £5.4 million in Series A funding.

“Every stage of finance that we recommend to our customers, we have been through that journey,” says Andrea. “So, everything we offer is tried and tested by Swoop itself.”

Andrea Reynolds

“Now, there are many bespoke products that aren’t necessarily offered by a mainstream bank, and these include a variety of products that potentially don’t require bricks and mortar.

“They can be for sector-specific products, they can be for a short duration, they can be for the long term, and they can be much more bespoke in terms of the guarantees that are needed. There’s a lot of challenger funders, or lenders in the market that offer much more competitive terms than we’re seeing from the traditional banks.

“The appetite from the high street bank has shrunk, so you can no longer walk into your local branch and see your bank manager. Usually for SMEs, you speak to someone in a call centre over the phone. And in any case, there’s a much bigger opportunity outside of mainstream banking.”

The list of alternatives is long and varied – but for the moment, let’s run through some of the more popular and innovative options.

Grants

Before you try borrowing, it might be worth applying for a grant. “If you’re on Swoop, you can check the whole UK market to see which grants are available to you,” says Swoop’s Head of Equity, Tom Butterworth.

“The application might take the form of a competition, and these can be quite onerous. You have to put in some money to begin with, or some time and effort to write a good application.

“But at the end of the day, you’re not giving away any of your business, you’re not strapped with debt after it and you’ve got a huge cash injection for nothing, really.”

Startup loans

Another popular choice is the government-backed startup loan,

worth between £500 and £25,000 per director. With a maximum of four business partners, that’s up to £100,000 in total.

The loans are unsecured and designed to pay for concepts, testing, designs, prototypes, machinery, plans, legal needs, premises, marketing, staff costs and more. Their ultimate aim is to bring a seed or early-stage business to life.

Startup loans can be repaid over a period of one to five years at a fixed interest rate of 6% per year.

VAT loans

SMEs use VAT loans to pay off HMRC’s quarterly VAT demand. “What these do is split the cost across three, six, nine or 12 months,” says Rhys. “It means that HMRC are being paid ahead of any other creditors that the SME may have.”

The sum you can borrow, ranging from £5,000 to £5 million, will depend on your eligibility and your business’s unique circumstances. The typical APR for borrowers with good eligibility is 2.9% at present.

Merchant cash advance (MCA)

This relatively new form of loan suits businesses with a high volume of card payments. Essentially you borrow a lump sum, which you then repay as a fixed percentage of customer card receipts.

“It’s great for seasonal stock,” says Rhys. “So, if you are a corner shop and you want to purchase stock for Christmas, the lender will take a percentage of future sales.”

A variety of factors, such as your turnover, industry sector, business credit rating and volume of card receipts, determine the cost of borrowing. This typically ranges from 7p to 35p per £1.

Revolving credit facility

A revolving credit line is rather like a flexible, open-ended loan.

This means you can borrow cash, pay it back, borrow some more and so on, for the agreed duration of the term.

The maximum you can withdraw is usually equal to your business’s monthly turnover.

Focus on property

Revolving credit facilities provide a fast, flexible form of funding that doesn’t require security and works out much cheaper than a business credit card. On the downside, they are shortterm and charge higher interest rates than fixed business loans.

Unsecured business loans

If your business lacks assets, you may want to consider an unsecured facility – one that doesn’t require collateral, in other words. Secured loans, by contrast, are the stock in trade of high street banks.

Unsecured loans from less traditional lenders are usually more expensive and depend on your business profile –that is, your trading history, turnover and credit score. They are, however, quicker and cheaper to arrange than the secured type.

“We’re seeing more lenders come to the market where there is less need for the trading history,” explains Rhys. Companies that have traded for as little as three or six months may be eligible.

R&D tax credits

R&D tax credits encourage businesses to invest in research and development. The scheme allows a proportion of a company’s R&D spend to be recovered as either a reduction in corporation tax or as a cash payment.

HMRC’s broad definition of R&D projects includes investment into

technology, IT systems, data and cloud computing. Indeed, sectors as varied as agriculture, construction, engineering, architecture, food and cloud computing could qualify.

The last word

A common mistake that SMEs make is to lose heart and give up when their high street bank refuses them a loan.

“We do deal with the high street banks when there is a high street bank deal, but many funding options aren’t available from them,” says Rhys. These banks in particular “do like bricks and mortar”, he notes.

His advice is to consult a specialist about exactly what you’re looking for. “Many brokers, many intermediaries and many bank managers may not know the ins and outs of every product,” he adds.

“At Swoop, we have specialist divisions – whether that be asset finance, unsecured lending, commercial mortgages, equity investment or grants - because we have such a broad range of options.”

To find out more, visit: swoopfunding.com

There’s a lot more to Swoop than just securing loans and grants.

Later on, we’ll be talking about equity. But as well as that, there’s property to think about.

If you’re looking for a commercial mortgage, Swoop can do the hard work for you.

Its experts will use all their experience and skill to present your deal to lenders in the best shape possible, opening up more options and reducing the interest you’ll be charged.

Commercial mortgages cover three scenarios:

• You’re a business that trades from and owns the property you wish to borrow money against.

• You’re a property owner who receives an income from a tenant or licensee.

• You own a portfolio of properties.

In every instance, Swoop’s specialist brokers are on hand to work with you and support you in your objectives.

It’s worth pointing out, however, that commercial mortgages have become harder to achieve in the current economic environment.

Swoop’s Rhys Cunnah cites contributing factors such as rising interest rates, inflation and business costs.

Meet the team

Three key contributors to Swoop’s success

Ciaran Burke

COO and co-founder

Ciaran graduated in business and economics from Trinity College, Dublin.

He began his career at KPMG Sydney as a senior market analyst, then became a management consultant in London, where his clients included EY, Intersport, Vodafone and Oakley. His passion for growing businesses and building a community around them took him to Hiive in 2013.

Ciaran oversaw the development and launch of Hiive.co.uk, the professional network for creative people, which now has over 150,000 registered members and 4,500 businesses on board. These include Google, the BBC, Facebook, Framestore, Channel 4, Penguin and Sony.

In 2018, he co-founded Swoop, overseeing its development and launch.

AnnMarie Swift Commercial FInance Manager

A chartered banker, AnnMarie has over 30 years’ experience in the financial services sector and has spent the last 20 years in a senior relationship management role with a high street bank’s corporate and commercial finance team. This saw her working with a wide range of SMEs from manufacturers to techbased businesses. AnnMarie uses her knowledge and experience to expertly support SMEs all the way through the process of financing a business or property with a range of flexible funding options. Her professional and ‘can do’ approach establishes strong relationships with clients who trust her to deliver the most competitive finance solutions from the debt market

Sam Tasker-Grindley Head of Swoop for Advisors

Sam is passionate about helping business owners and accountants reach their potential and lead the best lives they can.

By day, he is a chartered accountant, heading up the rollout of Swoop to the accounting world. His objective is to help forwardthinking firms scale their funding advisory services and support more of their clients to grow their businesses.

By night, he is co-founder of Studenteer.co.uk, matching students with the charities and good causes that need them most.

Sam graduated from Cardiff University in 2011 and is vice president of the Institute of Chartered Accountants in England and Wales’s West Yorkshire and York group.

A PIECE OF THE ACTION

How do you find the ideal funding partner? Swoop’s Head of Equity has the answers

IF YOU’VE EVER watched the TV show Dragons’ Den, you’ll have an inkling of what raising equity investment is.. In layman’s terms, it’s handing over a chunk of your business in return for fresh capital.

“It’s the purchase of common shares within a company,” explains Swoop’s Head of Equity , Tom Butterworth, “and these entitle the owner to a certain portion of the profits and assets.”

When a startup seeks fundraising help, Swoop’s equity team starts by reviewing its slide presentation, known as a pitch deck. “And if we think we can help with that raise, and we have the right investor network for them, we’ll take them on as a customer,” says Tom.

Hard questions

Before you commit to the process, however, Tom suggests examining your motives. Are you ready to raise equity investment, and do you really need to?

“Some founders register their company, start getting things in place and immediately think: ‘I need equity investment.’ Maybe it’s the influence of reading about venture capital,” he says.

“Yes, it’s true that you can grow faster when you’ve got more capital behind you, but it’s not the only way to start a business and grow substantially.

“I would ask of a founder, ‘Are you ready to give away some of your business, to give away some of the control?’ An investor who expects a return might want to influence decisions.

“Also, are you ready to give away a part of the startup’s profits when all goes well?”

To begin with, companies that wish to grow organically might be better off avoiding equity funding, Tom suggests. “When you use the operating cashflow and invest your profits back into the business, that’s called bootstrapping. “Lots of businesses have done this, and they can take venture capital

money later on if they need it. But bootstrapping can really allow you to find that product market fit – to make sure you have a product that customers want without putting yourself under a lot of pressure.”

Friends and family

Grants and startup loans, discussed elsewhere in this supplement, are options too. So is persuading friends and family to invest.

“This can be anywhere between £10,000 and £150,000. A high proportion of our businesses have taken on some sort of family and friends’ money before they look to raise from an institution or an angel investor,” says Tom.

Nonetheless, he recommends “keeping it professional” and using

proper documentation in these circumstances. “Detail the risks that are involved, as they may not realise exactly what they are getting into,” he adds. “Startups sound great, but most fail in reality.

“Also, don’t give away too much of your business too early, because then your capitalisation table won’t look very attractive for investors later on in different rounds.”

Angel delight

Angels and high-net-worth investors are the next place startups might look, says Tom.

“Again, these might be within your immediate network, or you might get an opportunity to pitch to an angel syndicate. There might be pitch nights with angels in the audience.

“There are many angels out there. Often they are ex-founders themselves, or they know a certain industry very well.

“The big benefit I’ve found with angel investors is that they can write a cheque much faster than a venture capital (VC) fund can. It’s their own money, so if they really like you and your idea, they might write your cheque after a week of due diligence –or on the spot.”

Venture capital

VC funds are a huge part of the fundraising network, frequently highlighted in the media. Major international examples include Sequoia, LocalGlobe, Index Ventures and Andreessen Horowitz.

The jargon-buster

TAM: Total Addressable Market –total market demand for a product or service

SAM: Serviceable Addressable Market – the segment of the TAM targeted by your products and services

SOM: Serviceable Obtainable Market – the portion of SAM that you can capture

EBITDA: Earnings Before Interest, Tax, Depreciation and Amortisation

VC: Venture capital – a form of private equity

VCT: Venture Capital Trust – private equity funds whose shares trade on the London stock market

CGT: Capital Gains Tax – tax on the profit when you sell something (an ‘asset’) that has increased in value

Advance Assurance – provisional confirmation from HMRC that the investment made into a company will be eligible for tax relief

Runaway – the amount of time a business has to remain solvent, provided they don’t raise any additional funds

Run rate – the financial performance of a company, using current financial information as a predictor of future performance

Burn rate – shows how much money a company uses before it starts generating income

“These guys are the big funds, but there are many, many funds that are global, European or UK-based and we have a large network of them within Swoop that we try and keep warm.

“We make sure that they’re seeing all the best deals that are available in the market that we have for them and giving our founders the opportunity to get in front of them,” says Tom.

In addition, many funds have been set up to take advantage of two government tax schemes, the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS).

“The SEIS scheme allows a startup to take £250,000 of investment within three years of their first commercial sale, then the investor can write off 50% against their tax bill that year. They’ll also pay no capital gains tax, and no inheritance tax, on the profit from their investment.

“EIS, the big brother of SEIS, allows a business to take on £5 million within any given year, or £12 million over the lifetime of a business. They just need to take in those funds within seven years of their first commercial sale.

“These two schemes have been a huge benefit to the UK ecosystem, with loads of funds starting up to take advantage of them.

“It’s one of the reasons why the UK is so far ahead of other European

countries in the startup space.”

Some VC funds, such as the Midlands Engine Investment Fund and the Northern Powerhouse Investment Fund, invest in individual UK regions. The advantage for businesses based there is that “you reduce your competition to that specific region. So, you may be competing with just a handful of other startups that are within your sector.”

The wisdom of crowds

Elsewhere, family offices that traditionally concerned themselves with property and retail have become major investors in tech startups, says Tom. “They can be hard to get in front of because they don’t publicise themselves as much as a venture capital fund would. But Swoop has them within our network.”

You may well have heard of crowdfunding too. The platform best known to the public, Kickstarter, enables fans to finance creative projects by clubbing together in their thousands.

As far as Swoop is concerned, the two main players to watch are Seedrs and Crowdcube. “Unlike Kickstarter, here you are giving away equity. It’s great for consumer businesses,” says Tom. “You don’t just go live on these platforms without having some of the investment already committed,

because sitting there with 0% invested doesn’t get the FOMO, the fear of missing out. But crowdfunding can be an absolutely brilliant way to raise the funding you need and get great publicity.”

How to succeed

All in all, then, what do SMEs need to know about raising capital?

“Realistically, it will take three to six months to raise institutional investment,” says Tom. “Make sure you’re really willing to give time to the fundraising. That’s where Swoop can help, by giving you some of that time back and doing the investor outreach for you.

“You’ll also need a well-designed, well-presented pitch deck so that you’re giving all the key aspects of your business. We have an ideal Swoop pitch deck template you can use.

“And founders should understand their finances. We’ve all seen Dragons’ Den, when the dragons ask about financial projections and people fall to pieces.

“For the most part, you want to show product market fit – that is, your product satisfies a strong market demand. Maybe you’ve done some research to show there’s a problem and you’re the one to solve it.

“Finally, get to know the investors and choose wisely. This is also where Swoop can help, by finding those right investors. You need to see it as a partnership, because they’re going to be a part of your business for several years to come. Make sure there’s a trust there and that they’re adding value.”

To find out more, visit: swoopfunding.com

‘There’s

a serious opportunity here’

With venture capital funding, a classroom project to develop eco-friendly dog foods made the leap into the commercial realm

OFFERING YOUR DOG a nutritional superfood made from insect protein instead of conventional meats has a number of surprising benefits.

Firstly, it’s fantastic for the environment. Given that livestock farming helps to drive deforestation and climate change, it’s sobering to learn that pets consume a fifth of the world’s fish and meat.

What Grub Club’s co-founders didn’t initially realise, however, was just how dramatically their products would transform the lives of the dogs themselves. That’s because canine allergies are common and are often linked to eating beef, chicken and similar foodstuffs.

“Some of the testimonials we share online are just amazing,” says Alessandro Di Trapani, who co-founded Grub Club with trained chef Hugh Petit.

“A customer told us that her dog’s allergies were so severe, the vet suggested putting the animal down. She made the swap to our food and

now her Shar Pei has a new lease of life. It’s healthier than ever.”

Gathering momentum

The inspiration for Grub Club came while Alessandro and Hugh were studying for their MBAs at London Business School.

“It was for an entrepreneurship class,” says Alessandro, “and it was all born out of an article in The Wall Street Journal, where someone in the United States was building a similar business. She wanted to become the Beyond Meat of the pet food industry.”

During their research, the pair discovered that pet owners were feeding their animals high-quality, human-grade cuts of meat, “which is bonkers from a sustainability point of view. So, we started to look at how we could solve this problem.”

Vegan diets for dogs are controversial, and lab-grown meats are prohibitively expensive. “The alternative is insect protein, which

is gathering massive momentum globally, especially in markets like pet food, aquaculture and livestock feed,” says Alessandro.

“We spent the tail end of 2020 and the best part of 2021 understanding the market, surveying as many customers or potential customers as possible and understanding their perceptions of insect protein.

“All of this is great, but without the money to launch a business, it would just remain a classroom project. Then we realised, ‘There’s a serious opportunity here – I’m going to need to raise some capital to bring this business to life.’

“I’m fortunate enough to have a network in the UK, but most of my network is back home in South Africa, so raising capital here was a daunting task.”

The two men established that their best bet was to raise equity via the SEIS and EIS tax schemes. “The focus was on trying to find angel investors who would be interested in the proposition. The tax breaks on offer are a huge incentive,” says Alessandro. The breakthrough came after he explained the startup’s challenges to Swoop’s Head of Equity, Tom Butterworth, who’d been on the same MBA programme.

“Tom passed our pitch deck on to a few SEIS and EIS funds, who we then decided to pitch to. We were fortunate enough to get a couple of term sheets out of the process, and then went with the fund who we’re currently working with.”

Now Grub Club’s successes are mounting up. “We’ve been unlocking a lot of growth with our subscription model online, we’re continually adding new products to our portfolio, like dental sticks, and we recently launched a retail partnership with Daylesford Organic. So yeah, things are moving in the right direction.”

CASE STUDY - Grub Club Dog Foods

Don’t dream it, Swoop it!

We asked Swoop’s team to tell us what makes their service so effective. Here’s what they said, in four parts

1. Swoop supports businesses by showing them their options – but we don’t swamp our customers with irrelevant information.

Thanks to open banking technology, Swoop can find the products and services that customers need, giving them access to the best deals in the market and matching them with products they’re qualified for.

If a business needs a loan quickly, for example, our platform will show the amounts for which the customer is

pre-approved through various funders.  With more than a thousand lenders in the market, Swoop uses APIs to share data securely, showing customers which products are an ideal fit for them.

2. We help businesses get into shape.  Swoop constantly pushes for the market to meet the needs of SMEs better. We’re our customers’ “unfair advantage” when it comes to negotiating a better deal.

We’ve also been encouraging our customers to know their credit score (see survey box opposite). This provides a snapshot of a business’s financial health and it is used by lenders and other companies to assess your suitability for a product.

Customers with a good credit score will get better deals on borrowing, energy and other financial products.  swoopfunding.com/uk/businesscredit-scores/

According to Swoop’s research, the number of businesses checking their credit score in the past 12 months has leapt from 30% in 2021 to 88% in 2022.

For customers seeking equity investment, one of the equity team’s skills is helping to put pitch decks together that will encourage investors to buy part of the business.

swoopfunding.com/uk/blog/thefive-things-that-make-a-businessinvestable

At Swoop, we are committed to