The York and North Yorkshire Growth Hub has started to promote a Loan to Equity scheme for food and drink businesses in its area.
Under the scheme firms can apply for an interest-free loan of up to £100,000 over a 12-month term without any monthly repayment obligations. When the loan matures, it can either be fully repaid or converted into equity in the candidate’s business, subject to the lender’s discretion.
It’s said that the scheme offers a valuable source of funding at zero cost, enabling firms to develop and scale their operations. Additionally, throughout the loan period, the businesses will receive valuable business support. A successful outcome involves the conversion of the loan into equity at the end of the 12-month term. Such a conversion also serves as a strong indicator of the investor’s willingness to provide future equity-based investments on the loan anniversaries in subsequent years.
The Loan to Equity scheme is open exclusively to high-potential UK-based Food and/or Drink manufacturing businesses engaged in retail or direct consumer sales. To be considered, candidate businesses must demonstrate a compelling consumer proposition and a well-defined business plan. They should have progressed beyond the initial developmental stages and be ready to scale. They must also be:
- Registered in the UK
- Owner-operated
- Engaged in Food and/or Drink industry
- Have a consumer-branded product
- Annual turnover up to £4 million
- Present a compelling business plan with ambitious growth targets
- Be in operation for five years or less since incorporation
- Provide evidence of consumer demand for their brand
Key details of the Loan to Equity scheme are as follows:
- Eligible businesses can receive a secured interest-free loan for a 12-month period, with a maximum value of £100,000, upon successful completion of the application (including the business plan). The ultimate goal is to convert the loan into an equity stake when it matures. For investment purposes, the company’s valuation will be based on 5 times EBIT (Earnings Before Interest and Taxes).
- Throughout the loan period, borrowers will benefit from professional advice from the lender to help them achieve their company goals.
- Monthly meetings between the lender and the borrower will be held to review company performance, plans, and progress.
- At the 6-month mark, the lender will inform the borrower of their intention to either call in the loan upon maturity or convert it into equity at the end of the 12-month term, based on a valuation of 5 times EBIT.
- Successful conversion of the loan to equity will grant the investor the right to appoint a Director to the invested business.
- Moreover, the successful conversion opens the pathway for future equity investments in the business, if desired by both parties, on the 2nd, 3rd, 4th, and 5th anniversaries of the original loan. The company’s valuation for these subsequent investments will also be based on 5 times EBIT on each anniversary.
Further information about the scheme is available from Simon Middleton simon.middleton@ynygrowthhub.com no later than 18th August 2023.
