Alternative finance

Finding it difficult getting a bank loan to support your growth? Alternative routes to finance exist - but aren't always easy to navigate.
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SOURCING finance remains a problem for many businesses as they try to grow.

As Julia Groves, director of the UK Crowdfunding Association, pointed out when opening a debate at this summer’s Fintech Week: “At various phases and different stages, there’s a problem with businesses trying to get access to finance. In an economy so dependent on SMEs for growth, that seems absurd.”

Richard Blakesley, a partner in Capital Pilot which matches early-stage tech firms to investors, said: “One of the key issues is that there’s an expectation on all entrepreneurs that they have the tools to do not only their day job but the fundraising as well.”

Even the sharpest of business minds could look at the “vast morasse” of funding options – early-stage venture capital, crowdfunding, angel syndicates and networks – and not know where to start, he said.

While crowdfunding has grown in popularity in recent years – Beauhurst research suggests £98m was raised in the UK in the first half of 2017 – Chris Rea, of the Seedrs platform, warned it was no easy option.

“It does take a lot of hustle, and it’s very public,” he said, adding that some business owners were reluctant to publicly declare metrics like user numbers. It’s as much a marketing and PR opportunity as about raising money, he added.

Generic image of young man holding credit card and using smart phone.
READ: The first part of our round-up of messages from London Fintech Week

Megan Reynolds, equity fundraising manager for CrowdCube, said crowdfunding was “very much about getting out to new customers but also supercharging existing customers”; bringing them into the business to retain them.

It had opened up investment to a wider range of funders, rather than putting off angels as initially feared, she said. Rea said most investors wanted to get involved in start-ups as a sideline to full-time jobs, offsetting the risk by taking advantage of tax breaks under government Seed/Enterprise Investment Schemes.

This early-stage investment was “patient capital” invested over a decade, whereas most entrepreneurs were focused on the cash they would need over the coming year, said Blakesley.

Colin Goldstein, of Iwoca, said his company offered short-term options for businesses – typically with fewer than 10 employees – struggling to access cash to close a deal or manage cash-flow. By providing a platform to brokers, Iwoca can provide automated instant decisions on loans within minutes when SMEs open access to their accounts.

“Traditional routes small businesses would have gone down – bank overdrafts or small loans – have, particularly since the credit crunch, become more and more inaccessible. We are using tech and data to make it faster simpler and fairer for small businesses to get access to credit,” he said.

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