Although Scotland's food and drink sector has suffered significant challenges over the last few years including supply chain disruptions, soaring commodity costs and a global pandemic, it remains one of the nation's largest industries, valued at £15 billion and targeting £20 billion by 2028.
From smaller artisan brands to large corporates, funding will always be a key consideration for businesses in the food and drink sector, regardless of which stage they may be at in their life cycle. The main funding options available to small and large food and drink manufacturers in Scotland and throughout the UK include traditional bank loan facilities, equity finance and crowdfunding.
Banking Facilities
One of the most common forms of funding in the food and drink sector is through traditional bank financing. Every bank has unique parameters for analysing the creditworthiness of a business but as you would expect, when considering a loan application, a bank will typically require a robust-up-to-date business plan and cash flow forecast so it can assess how the loan is to be used and how likely the bank is to be repaid. The bank may also require security to be granted over the assets of the business, security over any land and buildings owned by the business and also a floating charge covering the stock and other assets of the business.
It is also worth noting that with the United Kingdom's 2050 net zero commitment, banks are becoming increasingly focused on environmental, social and governance (ESG) issues, and so you should ensure that your business is paying attention to its ESG credentials.
Equity Financing
In an equity financing, an investor provides capital in exchange for an equity or ownership stake in the business. The three most common sources of equity financing are private equity funds, angel investors and venture capital funds. Raising equity through financing can help plug an investment gap as well as provide your business with expertise, insight and advice to reach the next stage of its growth. Whilst the involvement of a high-profile investor can make your business more attractive for further private investment, private equity investors may look for differing levels of control at both board and shareholder level which will need to be carefully considered and how that will interact with your operational requirements.
Crowdfunding
Crowdfunding enables businesses to source small amounts of funding from a large number of individuals, usually using an online platform such as Crowdcube, Kickstarter or Funding Circle. It has become a popular method of attracting investment in recent years for new and existing businesses. Given the small nature of individual contributions (a large raise may be distributed across hundreds or even thousands of investors from the "crowd"), each investor bears a limited financial exposure. Consequently, investors recognise and accept the high level of risk involved in early-stage companies and concepts.
You may therefore benefit from receiving funds with minimal or no short-term cash repayments, whilst building loyal followers, future customers and brand equity. Sometimes The "crowd" is a community or group of people with a particular attachment to the product or location. The oft-cited example in food and drink is the equity scheme operated by Brew Dog, which has grown to epic proportions in its value and reach. But crowdfunding has been used by businesses of all types in the sector, including producers, dining concepts and distillers at all stages of the business journey – not least because it is source of capital for companies that might not meet the requirements for traditional finance.
