In light of falling lending figures, it’s worth being aware of the alternatives, writes Clive Lewis, the ICAEW head of enterprise
The bank is always seen as the traditional place to go if you need to borrow money. However recent lending figures from banks show that the amount of cash being lent to small businesses is falling. Financing growth is critical for start-ups and small- to medium-sized enterprises (SMEs) looking to take the next step, but banks are not the only option. Start-ups and small businesses need to realise that there are other options available, especially at a time when getting access to finance is more difficult.
In the recent Department for Business, Innovation & Skills Small Business Survey 2012: SME Employers, accountants were cited as being the most trusted source of advice for SMEs and one of the most frequently asked questions for the free ICAEW Business Advice Service is: “what else is there?” Well…
An angel investor is an affluent individual who provides capital for a business start-up, usually in exchange for ownership equity. Increasingly, angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital. They frequently bring business experience, contacts and insights that can take the business into new markets and offer new horizons. Angel investors will accept lower rates of return than venture capital and private equity but many expect involvement in management of the company. Angels will sometimes take on a business which is financially challenged provided they can see potential for growth.
Venture capital requires business owners to sell a stake or share in their business in exchange for investment. Venture capitalists often provide non-executive support to the board and have deep pockets to support future expansion. But, as on Dragon’s Den, sometimes the terms are costly and the business owner will need to meet set exit requirements to end the deal. Overall, management buyouts in popular or growing sectors will find access to venture capital easier than inexperienced start-ups.
The Funding for Lending scheme is the latest government initiative to encourage banks to lend to SMEs and the residential housing market. There are many banks signed up and offerings will vary by bank. For example, some are offering businesses cash-back on new loan facilities and others offering discounted interest rates or loan finance with no arrangement fee, which are better terms than traditional bank loans.
Crowdfunding is online lending and borrowing, which allows people who have money to lend it to those who wish to borrow, instead of using savings accounts and loan applications at traditional banks. The process is sometimes referred to as peer-to-peer lending. For borrowers, the loans are very flexible, allowing variation of monthly payments and early repayments without penalty. Matching is done on a many-to-one basis, so that each loan is spread across many lenders, thus reducing the effect of any defaults on individuals.
Using the ICAEW Business Advice Service you can now draw on the expertise of leading financial experts to discuss a business financial healthcheck or assistance with preparing a business plan to help access finance.