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Momentum Gathers in Alternative Funding

Thursday, April 04, 2013    

The UK is set to avoid falling back into recession, according to the British Chamber of Commerce (BCC). Some would be forgiven in asking, “have we ever been out of the first one?” 

The Markit/CIPS manufacturing purchasing managers index suggests the UK’s manufacturing sector continued to shrink last month, like that of the previous month. 

“Statistics are used much like a drunk uses a lamppost: for support, not illumination” – Vin Scully. Businesses have to look at their own circumstances and market(s) to asses whether they are truly in or out of recession or merely stagnant.  If we consistently lie for long periods of time, one day we may come to believe them.  

The Funding for Lending Scheme (FLS) was designed to encourage bank lending to individuals and businesses. According to the Bank of England, the number of loans being offered by the banks continues to fall. The banks general response has been, ‘though lending across the board may be down, it would have been far lower had there not been the FLS’. This is little comfort. Upon further inspection, the FLS’s aim to boost lending to both households and businesses has been morphed by the banks to “mortgage lending is good, business lending is bad”.

For business to survive and to even consider growth opportunities, it needs to have access to sufficient working capital – i.e. cash. The languid appetite for traditional lending for any project that may have a faintest vein of speculative risk can only open the door to alternative finance.

Over the last couple of years I have commented on the rise of peer to peer lending as just one alternative form of finance. The momentum continues as various platforms are now being authorised by the Financial Services Authority (FSA) and gaining regulatory approval. This opens the gate to the funding of start-ups and businesses that do not have assets to pledge as security or those in “undesirable sectors”  - a term used by the high-street banks as a reason not to lend.

With this in mind, Wayne Rooney (footballer), Kevin Pietersen (cricketer) and Theo Paphitis (Dragons’ Den star) are just a few of the people that have teamed up to offer a service giving loans to businesses that have been turned down for finance by traditional banks. The trio have invested in Senone, a £2.5m venture put together by Ian Currie, a former Bolton Wanderers director.

Times are changing. Though these platforms will not replace the traditional banking model they do offer a successful alternative. Today you should be creative in how you package your business to a lender and be prepared to look at the bigger picture. However, these alternatives do take time and effort to yield results, they are not a cash vending machine and they still take a view on risk and reward.

With crowd funding (such as - just one option), multiple investors will make a measured assessment of whether what you intend to do with the cash is worthwhile, both in terms of financial return and risk. However, they may consider that moral and ethical values outweigh a financial return in reaching a decision whether to invest or not. Therefore, funding may be achieved by any business at any stage of its business life (there is no ideal model). Business owners and entrepreneur’s just need to invest time in seeking out the right platform or lender and be open to suggestions. Alternatively look to a suitably qualified corporate finance firm to help you explore your various options. There is often more than one financing option to consider.


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