I attended the ACCA conference on Alternative Finance (AF), hosted by Barclays Bank at Canary Wharf on the 8th July. Speakers included Emma Jones (Enterprise Nation), Marte Borhaug (CBI), Jonathan Moules (FT), Rebecca McNeil (Barclays) and Irene Graham (BBA).
AF is becoming a real alternative to conventional bank funding, especial for SME’s looking to grow. The link above is to the ACCA’s Technical Factsheet on AF. It is worth looking at as it covers the sector in detail and gives information on some of the providers.
There where some clear messages going out from the speakers, which I have noted below:
- AF is here to stay and provided over £4bn of funding in 2014
- The main High Street Banks now have to refer businesses to a panel (platform) of alternative finance providers if the decline funding, or feel that it is more appropriate for their client’s needs. So not only a lender of last resort!
- AF can provide both borrowing and equity financing. It ranges from P2P Cloud (or online) funding providers to business angels and VC’s.
- AF covers many types of financing. A more unusual example was given of Hotel Chocolat, who issued a bond which provided lenders with their product rather than interest.
- It was stressed by some of the contributors that with P2P finance you don’t just get funding, but you have many enthusiastic investors who will talk about your product to friends and family and even buy the product. What better PR!
- It is also important that businesses are aware of their credit ratings and the credit rating process. It is worth looking at the following link on the BBA site BBA Credit Rating . It was even suggested that accounts and other returns to HMRC and Company House are provided earlier than required, to improve the business’s credit rating!
- The timing of the process in getting finance is important. Many SME’s will need quick funding to take advantage of an opportunity, or to deal with an adverse event. In many cases funding will not be immediate and will require the preparation of business plans and forecasts. Funding Circle (P2P) on average take 15 days to process a loan application. Equity funding could take many months to arrange!
- Sometimes finance is required for short term working capital requirements. Overdrafts and invoice discounting are the traditional methods, but iwoka (www.iwoca.co.uk) can provide an AF solution.
- Small businesses should be encouraged to use advisers, or business mentors when applying for finance. It is a complex landscape, especially if you are busy running a business.
The current AF providers are looking for better regulation and governance, and this is evolving in the new market. It also needs to be better understood by investors as it does not have the same protection as bank deposits. There are 2 Trade Associations covering the AF market. www.ukcfa.org.uk and www.p2pfa.info
There have been marketing benefits in using P2P funding and stated above with Hotel Chocolat. But you should only use funding, traditional and AF when it is required.
At GetinBiz we are excited by the opportunities that AF provides the start-up and established SME market. It is important to get the right form of finance and it is important that advice is sought. In many cases the more traditional finance options may be more suitable, such as asset finance or invoice discounting.
Prepared by Martin Samuel