1. Wednesday 3rd July 2013
Garry Brown
Loan Finance - Social Investment
•Considerations – applicant / funder
•Components in an application
•Decision process

2. About the Key Fund
The Key Fund is Britain’s largest regional
Community Development Finance Institution (CDFI)
Specialists in the social economy market
– balance commercial activity with social return
Leading provider of Social Investment
in the North of England
Market leader
in innovation
Professional, qualified
and passionate
Revolving Loan Fund
Remove barriers within Society
& Financial Markets

3. Risk Perception
Loan Purpose

4. Types of funding considered at various stages in the
business life cycle
Seed capital (seed-corn)
Concept / prototype Development
Market research
Pre-launch activity
Start-up
Product development / initial marketing
Initial Working capital or Asset Purchase
Early Stage
Trading
Not yet profitable / breaking even
Development
Funds for growth and expansion
Breaking Even / Profitable
Very High Risk
Own money
Venture Capitalist
High Risk
Debt (Loan) Funding
Banks / CDFI / Specialist
Term Loans >
Private Investment >
Venture Capital / Floatation

5. Risk dimensions (1)
Business Risk / Requirement Risk
High
Risk
Pre –Start
High / High
Start-Up
Early Stage
Established
Low
Risk
Low / Low
Fixed Asset
Acquisition
Low
Risk
Working
Capital
Growth &
Development
High
Risk
Management / track record / resilience / cash contribution / security

6. Risk dimensions (2)
High
Repay
Rate
Bank
Secured
Loans
Key Fund
Unsecured
Loans
Equity /
Patient
Capital
Low
Repay
Rate
Grants
Fixed Asset
Acquisition
Low
Risk
Working
capital
Growth &
Development
High
Risk
Management / track record / resilience / cash contribution / security

7. Secured Lending
Usually a formula used to determine the level of borrowing:
e.g.
•60 – 75% Loan to value (LTV) - underlying asset forms the security
•25% Loan to Value for HMO / Hotel used as hostels for the homeless
•Gross rental income to cover loan repayments by 130%
•Term of 15 – 25 years
•Generally lower LTV & shorter term if high proportion of tenants on housing
benefit – tenant quality…

8. Lending Decision Criteria
C
CUSTOMER
A
ABILITY
M
MEANS
P
PURPOSE
A
AMOUNT
R
REPAYMENT
I
INTEREST

9. LENDING DECISION CRITERIA…
CUSTOMER
Beneficial Owner / Legal Status / Board / Staff
ABILITY
Experience / Skills / Governance
MEANS
Net Worth / Available Security
PURPOSE
What will funds be spent on?
AMOUNT
How much required? Enough? Other sources?
REPAYMENTS
Is the loan affordable? Social Impact?
INTEREST
Can Vary with perceived risk?

10. Why do businesses fail?
•Overestimating income
•Underestimating how long to achieve profitable trading
•Underestimating costs
•Failing to control costs ruthlessly
•Losing control of cash… allowing customers too long to pay; paying
suppliers to promptly
•Failing to identify your market
•Failing to adapt product to customer needs
•Lacking appropriate/sufficient skills: selling & marketing, financial,
production, technical
•Failing to build a functioning team
•Taking unnecessary risks
•Under-pricing

11. Why do businesses succeed?
•Quality of management: you and others
•Experience in the chosen market and growth potential
(idea/market)
•Sufficient finance to meet working capital needs