Tag Archives: loans

What options are there for funding games development?

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Revenue is vanity, profit is sanity, but cash is king. Every start up and every project requires cash to get it off the ground. This is especially true in the gaming industry where, as an investment, computer games development is costly, risky and requires plenty of continued cash flowing in.

Unfortunately, all funding comes with a cost which can be varied and difficult to quantify. So how should you fund your next project? What funding is available? What is the cost of this funding? Some common forms of funding and their cost to your growing company are:

Equity

Equity funding is effectively encouraging individuals or corporate investors to provide cash in exchange for shares in your company. This means that instead of being charged a monthly interest fee, you are giving up a share of your assets and profits instead. You may have already been to an industry convention to show off your game to potential investors. On the face of it this provides the least risky option with nothing being paid out as dividends until the company is profitable. It is certainly the most widely available option for developers.

However, there is a hidden cost here and that is the loss of control. Being a 100% owner means you can do what you want. Investors may request you do things you don’t want to do such as costly accounting procedures such as audits. They may require you to give updates and may even want to be involved in the creative design of what you are doing.

You need to be fully aware of what your investors will want before accepting their money as once a contract is signed, it’s difficult to get out of. Shareholder disputes can be hugely disruptive and expensive to resolve.

Loans

Loans are the second main source of funding. These vary but the vast majority will have a finance cost attached to them, generally interest. This is in effect the flipside of the equity funding as mentioned above. The cost of funding here is usually constant over a period until the loan ends. As such unlike equity investors who would be difficult to remove especially if the company is profitable, once a loan term is up there are no more costs involved until you take out a new loan for a new project.

The problem with loans is that costs are incurred during the life of the loan, such as arrangement fees and interest charges. This leaves less cash for developing the games themselves. This in turn may result in you needing more funding than you would if you just got equity investors. There is also the issue of availability. Gaming projects may well be seen as risky and as such you may only be able to get loans that are expensive and unaffordable.

Crowdfunding

Crowdfunding uses a platform such as Kickstarter or Steam to fund game development by getting people to pay for it in advance or contribute to the costs of development through priority information and offers. This is probably the easiest form of funding and arguably the most cost effective. You also get a more accurate idea of how popular a project will be, and you get a lot of your potential sale income in advance, if the funding is in the form of advances against the games release.

Most of the costs of this funding however are hidden. Firstly, often you have to offer a game at a lower price than you would if someone bought the finished article. Therefore, although you may not be paying interest or dividends, by doing this you are effectively reducing your potential income. You also may put off future customers. An alpha version of a game, or a poor looking concept pitch, may not truly represent the final product and it may, after provisional game reviews, put the average consumer off buying the game on its eventual release.

So, which funding is right for me?

Unfortunately, there is no one correct answer for everyone here. All companies are different and what might be right for one company will probably not be right for another. I would suggest you talk to someone about your long term objectives to determine what is best for you and your company. After all you don’t want to be stuck in a contract you don’t want to be in but can’t get out of. You also want to give your project the best chance of success. With your funding secure maybe there will be a new king in town?

Common sense at last? – Some Non Doms will breathe a sigh of relief

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HM Revenue and Customs have made a quiet announcement in a few paragraphs to remove the draconian retrospective effect that the original notice gave in 2014 regarding loans remitted to the UK where they have used overseas assets as collateral.

Although HMRC gave until 5 April 2016 to unwind or replace this borrowing, it was seen as unfair to penalise individuals who had followed HMRC’s stance at the time and had, in good faith, followed their interpretation and organised their affairs accordingly.

HMRC’s announcement in August 2014, changed their interpretation of the legislation and, as mentioned previously, the only transitional relief for those who had already taken out such a loan was a long period of time to unwind or replace the arrangement.

Common sense has prevailed and the representations that have been going on for some time have finally borne fruit and the announcement last week has stated that anyone whose loan was brought to or used in the UK before 4 August 2014 will not need to be repay or replace that loan.  Note, it is the date the loan proceeds were brought to/used in the UK, not the date the loan was taken out that is relevant for these purposes.

Any loan proceeds brought to/used in the UK after 3 August 2014 will still fall within HMRC’s change of practice and anyone unsure how they may be affected by these changes should take advice to check their position.

Student Loans – Do you need a degree to understand the rules?

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With A-level results released over the summer in England, Wales and Northern Ireland, you may be one of the thousands of students who have recently headed off to university. It is likely that you will have received a loan from the Student Loan Company (SLC) to help finance your studies and associated living costs.
If you are taking out a loan in 2013, the loan repayment provisions will be a low priority until after graduation, but the rules are surprisingly complicated and it can be easy to get caught out.

Types of loan

The first thing to appreciate is that there is more than one type of student loan, and the repayment rules vary accordingly.

Income contingent loans are the most common type of loans but even then the repayment plan varies according to where and when you began your studies. From 1 September 2012, those studying in England and Wales will be on repayment plan 2; students in England and Wales with older loans, and all students in Northern Ireland and Scotland will be on repayment plan 1. The main difference between the two plans is the point at which the requirement to start repaying the loan begins: an individual on plan 1 will start repaying their student loan when they earn over £16,365 before tax in the year, the annual threshold for plan 2 is set slightly higher, at £21,000 before tax.

How does the repayment system work?

The requirement to repay a student loan starts from the April following the date you either graduate or decide to leave your course.

If you are employed, HM Revenue & Customs (HMRC) will notify your employer that you have an outstanding student loan and will confirm the repayment plan that applies. At the end of the tax year, your employer will notify HMRC of the total deductions they have made from your salary, who in turn will notify the SLC. The SLC will apply these repayments to your account.

What do I do if I have overpaid my student loan?

In most cases, loan repayments will be worked out by reference to a monthly earnings period. This means that if your monthly salary fluctuates, the amounts you repay will vary across the year, and you could end up repaying more of your loan than is required. In this situation you can request a repayment, but you may wish to do nothing. After all, the overpayment will mean your student loan is repaid more quickly and you pay less interest!

What do I do if I have nearly paid off my loan?

The SLC recognise the possibility that repayments will be made in excess of the original student loan. Accordingly, they write to all employees with outstanding loans where they believe the loan will be repaid in full within the next two years, offering them the opportunity to instead make monthly direct debits.

This option is only available to employees: if you are not employed, but are making student loan repayments you should monitor the outstanding balance on your student loan, and immediately request a repayment if you end up overpaying.

The SLC will only issue a repayment upon request, there is no facility for repayments to be issued automatically.

In conclusion, the repayment of your student loan is a two-step process: starting with establishing the type of plan you are on, and when your obligation to make repayments begins, followed by carefully monitoring the balance on your loan to ensure you do not overpay in error.