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Business funding: The old guard vs the new kids on the block

PUBLISHED: 16:33 05 July 2017 | UPDATED: 09:58 06 July 2017

(c) Rawpixel.com / Shutterstock

(c) Rawpixel.com / Shutterstock

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Convention says that business funding comes from traditional banks. But with the legacy of the financial crisis still affecting lending and Brexit looming, does it always have to be like that? Lucy Parford finds out where the money is at

You’ve got a passionately-produced product or service and have success in your sights, but where can businesses secure funding in this tough economic climate with Brexit looming?

Traditionally, banks have been able to offer business loans over a fixed term, overdrafts, credit cards and borrowing against a range of the company’s assets, including property or equipment.

According to the Federation of Small Businesses, a record number of Small Business Index respondents (74.5 per cent) were successful in their applications for credit at the start of the year.

New research by Barclays shows that 64 per cent of SMEs’ turnover would increase if they successfully secured the right loan, which could generate nearly 200,000 new jobs for Britain over the next four years.

The banks

Barclays has created mobile loans for businesses, making SME loans and overdrafts instantly available through its mobile banking app. Barclays is the first UK bank to offer the service, which reduces the time taken to get a loan from a weeks to under an hour.

Gary Chugg, Head of SME Banking for Barclays in Gloucestershire, said: “We recognise that some businesses are cautious about applying for a loan, whilst many more simply do not have the time.

“Our new, pre-assessed lending gives customers the ability to see how much they could borrow on their mobile and we can get that money to them more quickly than ever so they can invest in and focus on running their businesses.”

Metro Bank, which calls itself the entrepreneur’s bank, signalled at the start of the year that £1billion of funds would be ring-fenced in 2017 to lend to new and existing business.

The bank lent more than £551m in the first three quarters of 2016.

Metro has plans to open more branches in the south west and has recently surpassed one million customer accounts.

Mark Stokes, Managing Director Commercial Banking at Metro Bank, said: “Businesses are the bedrock of the UK economy and it’s vital lenders do what they can to support their growth. “

Jo Costin, regional director for Lloyds SME banking, Central England, said: “We’re committed to helping businesses understand the options available to them to help them unlock cash to fund growth.

“Our invoice finance packages enable businesses to borrow against the value of invoices they have issued, which is particularly useful in sectors like construction and recruitment where payment can be slow.

“Similarly, seasonal or rapidly-growing businesses might use asset-based lending to borrow against the value of existing stock or equipment. Asset finance allows firms to buy expensive, new equipment or machinery while spreading the cost of purchase over the life of the asset.”

New-wave banks

Computer says no? Not at Handelsbanken. The bank - which has branches in Bath Road, Cheltenham, and Cirencester, which is headed up by Di Pitts, works on local relationships and deals with individuals and business customers.

“We have a different perspective from most other banks,” says Cheltenham branch manager Stephanie Hughston.

“We believe that local people are best placed to make decisions involving their customers. All our customers deal directly with their own dedicated account manager based in their local branch, whom they can contact by phone, via email or face-to-face.”

Crowdfunding

Crowdfunder, the UK’s leading platform, has raised millions for projects ranging from wind farms to whisky distilleries and election fact-finding campaigns. Through Crowdfunder - or alternatives like Kickstarter - people or groups can raise the money needed by offering rewards to investors.

The Green Party launched its General Election Fighting Fund on Crowdfunder to try and help elect more Green Party MPs. At the other end of the spectrum, Cheltenham Town Football Club launched a successful bid for new scoreboards.

Angel investors

Many businesses choose to seek help from angel investors who can provide capital for a business start-up in exchange for an equity stake.

The Angel CoFund, launched at the end of 2011 with Government-backed funding of £50m to support the UK’s angel market, celebrated its fifth birthday last month.

Its focus is to back the best UK-based high potential and high growth early stage companies and to partner with business angels via co-investment. With more than £33m invested directly across over 70 UK businesses so far, alongside a further £142m from angels and angel networks, the initiative has had a significant impact.

By investing alongside angels and venture capital funds, the CoFund has been able to support and strengthen the UK’s angel market, helping to build an ecosystem that now provides UK-based entrepreneurs with more than three times the amount of start-up funding compared with six years ago.

Prominent portfolio businesses include Gousto, Ebury, Hopster and Creo Medical in Chepstow. They have collectively increased their revenues by one hundred fold, created over 300 jobs and have received more than £100m follow-on funding.

Timo Boldt, CEO and Founder of Gousto, which delivers recipe boxes around the country, says: “Without the right funding it’s impossible to scale a business from idea to impact - it’s central to being able to run a company. The Angel CoFund plays an important role and I’m thankful for its ongoing support.”

The Oxford Investment Opportunity Network, established in 1994, was one of the UK’s first business angels networks.

Bibliotech originally pitched at the October 2015 OION Ltd Showcase and successfully raised investment. It’s a webapp which provides students with the books they need on any device for a small monthly fee. A sort of Spotify for textbooks it gives university students all their textbooks online, anytime, anywhere.

Tao Mantaras, Chief Operating Officer of Bibliotech, said: “The Oxford Investment Opportunity Network were a pivotal network early on in our company story.

“It was where we met some of our initial angel investors, they were incredibly supportive and put great trust in our team, even at its early stage.”

Local Enterprise Partnerships

Oxfordshire Local Enterprise Partnership (OxLEP) helps businesses secure funding through its Growing Places Fund.

Investments are generally made on the basis of an unsecured loan with interest rates reflecting the risk of the applicant and project.

Mayfield Press, in Cowley, applied to OxLEP and secured £30,000 from the Growth Fund to renovate an extra floor to expand its digital printing operation.

The company, which produces PR material, direct mail, brochures and literature has now grown to 50 employees with sales expected to reach £6million.

GFirst LEP, which drives sustainable economic growth in Gloucestershire, offers financial advice to businesses at clinics.

Mike Curran, Strategic Business Manager at GFirst LEP, said: “These have been hugely successful, with more than 30 businesses receiving tailored advice. The intention of the clinics was originally to provide financial advice through a panel of bankers, equity specialists, crowdfunders, peer-to-peer lenders, Growth Hub business guides and other experts, but the sessions have evolved into offering much wider business advice, which is proving to be enormously valuable.”

Clinics will run on July 18, September 19, October 31 and December 12 – visit gfirstlep.com/events to book a space.

Selective invoice finance

Catalyst Finance, in Stroud, was founded by Jeremy Lawrence who decided to set up his own SME-funding business after becoming frustrated with trying to find timely, useful business finance himself without being tied into long-term contractual agreements.

Since 2012 Catalyst Finance has worked in collaboration with traditional finance companies and has helped hundreds of SMEs to grow by using selective invoice finance or commercial loans.

Caroline McDonald, spokeswoman for Catalyst Finance, says: “We provide short-term finance, for three months up to 12 months.

“We also provide business loans from £50,000 up to £1m. It’s for businesses which are up-and-running, looking to expand their business and need that injection of cash for a short period of time.”

Peer-to-Peer Lending

Another growing area of alternative lending is Peer to peer lending (P2P), a method of debt financing which enables individuals to borrow and lend money without the use of an official financial institution as an intermediary.

Folk2Folk, launched in 2013, was created to fill a funding gap at a time when banks were retreating from small business. It has an office in Tewkesbury.

It was named as the UK’s Up and Coming P2P Platform for Business by AltFi News and gained Financial Conduct Authority(FCA) authorisation in 2016.

It aims to give a decision on business loans in 24 to 48 hours, enable businesses to access funds within seven to 10 days and offer fixed or flexible loans.

Folk2Folk has recently joined the Peer-to-Peer Finance Association. Jane Dumeresque, CEO of Folk2Folk, said: “We look forward to taking the P2P industry from being an alternative form of finance to the go-to form of finance for SMEs and consumers.”

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