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Duncan Bannatyne says "think outside the box"
For any new business raising funds can be a nightmare. Some firms are able to grow organically, but for most start-ups no capital usually means no start.
That was the situation Duncan Bannatyne found himself in with his start-up business Quality Care Homes, which he established in 1986 with a share capital of just £2.
The opportunity was obvious but raising finance was not an easy job.
The then Prime Minister, Margaret Thatcher, had changed the rules over how the elderly could be looked after following an illness and in old age generally. Instead of just keeping the elderly in hospital wards they were to be given the opportunity of residential status in residential care homes.
And in order to make more beds available on the NHS she was offering private operators £260 per week for each and every resident they took in. It was, therefore, an immediate and guaranteed return on any investment, but Bannatyne first had to raise the finance.
Duncan found that the quality of existing homes was appalling and set about putting an appealing proposition together. He remembered visiting nursing homes and feeling disgusted to find old ladies sleeping 8 to a room and having to use commodes as toilets.
He decided that it would be better for them to have single rooms with their own en-suite facilities, and improved wheelchair access.
After accounting for staff wages, land, and building costs, he could get 33% return on capital. Therefore all the figures stacked up.
He purchased a plot of land for £30,000 and secured a loan with the bank for £20,000. Duncan then needed to find "just" another £310,000!
Confident of success and, on a wing and a prayer, he instructed the contractors to start building before he'd secured the bank loans. Duncan went from bank to bank asking for support to build his first nursing home.
The first two banks he visited said "No". The third said "if it's that good why isn't everyone doing it?" and then turned him down.
With the situation becoming increasingly precarious he had to make monthly payments to the main contractors. To make the payments he sold his house, car, television and borrowed £30,000 on 3 gold credit cards until the home was completed.
He then remembered what one of the banks had told him. And that was it would grant a 70% mortgage on the valuation of the filled nursing home. Valued at £600,000 just after opening he went back to the bank.
They agreed to the mortgage loan and he used the money to pay off the remaining debts. He then started to build a 20 bedroom extension onto the home, built more care homes over the next few years and borrowed more money on those assets.
Bannatyne sold the company 10 years later for £46m and pocketed £30m of it for himself.
So the moral of the story is that there are many ways to raise business funding and they're not always the most obvious. Think outside the box and stop listening to those who say it can't be done.
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