Business optimism seems to be slowly returning in a climate boosted by consumer confidence and rising house prices. Once again, banks are advertising their lending wares and some reported figures suggest that lending to small businesses may improve in the second half of the year.

“Bank finance is definitely more readily available than it was, but the climate for lending and funding is unlikely to return to the heady days before the financial crisis.”

So says Mark Eden, a partner at long-standing accountants and business advisers Jerroms, sponsors of the finance category at the 2013 Birmingham Post Business Awards.

“We are delighted to be sponsoring the Finance Category for the second year running and are pleased to see that this year there is increased positivity in the search for business funding,” said Mr Eden.

Specialising in meeting the needs of growing businesses in the West Midlands and further afield from its base in Solihull, Jerroms is one of the region’s leading advisers, providing expert business planning and tax advisory services to owner managed businesses.

Mr Eden said: “Though banks are becoming somewhat more positive, they remain averse to unsecured lending. With much tighter lending criteria, they will look very closely at the commercial and marketing underpinning of a customer’s business plan.”

He cites the case of management buyouts, where he points out that excessively high debt levels will not be an option in any deal.

More generally, banks are inclined to ask businesses to use long or medium-term loans to cover general business needs, rather than allow their customers to rely excessively on bank overdrafts.

Mr Eden said: “Interest rates are set to remain relatively low thanks to the Central Bank’s pledge to refrain from increasing rates until unemployment hits seven per cent, which is estimated to take two to three years to achieve.

Moving away from the narrow definition of bank lending, Mr Eden says: “Even where working capital finance is a key requirement, banks will usually ask customer businesses to consider asset finance, where advances are made against approved debts.

“Asset finance, such as factoring and invoice discounting, brings the advantage of flexibility as sales revenues improve, meaning that the higher debtor levels that result will provide the basis for additional finance without a renegotiation of bank facilities.

“However, if sales levels fall for any reason, the business can face a reduction in available finance.”

Lucas Markou, tax partner at Jerroms, points out that there are alternative borrowing options to consider, such as “peer-to-peer” lending, which has trebled in volume in the last three years.

He said: “Taking this route means that lenders can be accessed through specialist websites which match businesses to potential non-banking lenders for an introductory commission. It has been predicted that this form of finance will grow rapidly in the next few years.

“More generally, equity finance can still be found, often from smaller, specialist private equity firms or individuals who have made their business fortunes elsewhere.

“In conjunction with such sources of finance, individuals can also consider using other schemes aimed at making the business itself more attractive to potential investors, encouraging them to make a positive decision.

“An example of this is the Enterprise Investment Scheme (EIS), which is widely used to assist in building the equity base of the company, as it offers an income tax relief of up to 30 per cent on an investment of up to £1 million, along with a capital gains tax exemption.”

Mr Markou explains that another option, the ‘Seed Enterprise Investment Scheme’, offers broadly similar tax breaks but this time for relatively small businesses which have not traded for more than two years.

“Under this scheme, 50 per cent relief from income tax may be available for investment in qualifying businesses,” he said.

He adds that businesses can take advantage of other tax effective schemes to persuade lenders or investors of the commitment of directors and employees: “The Enterprise Management Incentive scheme (EMI) gives employees the option of acquiring shares in the business at some stage in the future, but at a price set when the option is granted,” he said.

“Where directors, management teams and employees have a stake in a business, there is an incentive to deliver. This can encourage employees to grow the business because the more the shares grow in value, the greater will be the gain for the employee on the option. The EMI is therefore usually a positive factor as far as lenders or general investors are concerned.”

The tax breaks available for employees through EMI are particularly attractive, as any growth in the value of the share is tax free until exercise and any tax due on the disposal of the share could be as low as ten per cent due to Entrepreneur’s Relief (ER).

A recent change in the rules means that the minimum period that an employee has to own the stake to receive the benefit ER (one year) can include the period since the option was granted, not just the period in which the share was held.

Overall, Mr Eden and Mr Markou are increasingly more optimistic, but they point out that finding the most suitable financing option is not straight forward and recommend seeking professional advice: “There is finance out there and expert advice can make a major difference in identifying sources of funding and presenting of the case to lenders or investors.”

* For more information on the Birmingham Post Business Awards and to book a table for the October 17 event at Edgbaston Cricket Stadium, please visit