The High Street lenders are, in the main, continuing to say that they are keen to lend but the experience of many SMEs is that they are not. This can of course be for all sorts of reasons but increasingly businesses are looking for other ways to obtain their funding.
With the growing use of the internet for everything it is perhaps not surprising that Crowd Funding has grown to be more of an issue.
Ø What is it? It simple terms it is about raising funds not from institutions or the market but from any member of the public (the Crowd) who might want to get involved. Currently there seem to be 3 basic types:
- Social Enterprises and the Arts….. Here it is used as a means of raising money for a particular project, with Social Enterprises as a form of donation, or to help get something put on e.g. theatre or art exhibition which otherwise would not have happened. For the former there is nothing in return and for the latter usually some form of voucher to get the giver in or provide a sample of work.
- Lending….. While the target here seems to be the SME market it is the quality end of that market i.e. those that credit score well and do not have CCJs etc. Borrowing is unsecured, other than Guarantees for limited companies, and the amounts lent have gradually crept up, currently approaching £100K. In simple terms a company wishing to borrow puts their details on a website and if accepted they can then put on what it is they need, e.g. £50K for 3 years. Lenders, individuals seeking a higher return for their money, bid to lend in reasonably small amounts quoting the rate they want and it might be that a loan of this size would have 200 lenders. The borrower pays the average rate and, if over-subscribed, rejects those with the highest interest rate. Lenders then get what they bid.
- Equity….. Much the same as lending but with shares being issued and all of the implications of that regarding payback.
Ø Who are the players and how do they work:
- There are a number of players in the market which seems to change on an almost daily basis so it is worth doing research before going down this road.
Ø This looks to be a market where there is a lot going on, it is probably a market that is going to show considerable growth quite quickly and it therefore should not be ignored.