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Market opinion | Alternative financing models | Jannah Patchay


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Jannah Patchay of Agora Global Consultants looks at alternative financing options and the benefits to investors.


It is often said that small-to-medium enterprises (SMEs) are the engines of growth in an economy. Every year, thousands come into existence; some destined for an early grave, others persevering through the initial challenges facing any business – bringing a product to market, developing a brand, building and retaining a client base, attracting investment – particularly in light of current market conditions, to flourish. The painful truth encountered by many of these


start-ups is that a good idea, well-defined business model and strong management team sometimes just aren’t enough. Access to capital for both investment and cashflow management is vital. In the post-2008 financial environment, banks


are (not unreasonably) reluctant to lend to high-risk borrowers, and where such financing is available it is often prohibitively expensive. Interest rates of 15-20% are not uncommon and financing costs can substantially impact the bottom line. Meanwhile, in a different segment of the market, another group of participants is faced with a


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challenge – what to do with their savings? With retail banks offering typical APRs of 0.1% – 1% on the more generous offers, the returns fall well below inflation rates, let alone any prospect of capital growth. And in a beautiful demonstration of the forces


of supply and demand at work, a few canny entrepreneurs have found innovative and mutually beneficial ways to bring these two groups, SMEs in need of financing and savers in search of growth opportunities, together. Whilst platforms such as Kickstarter left many observers scratching their heads – why would an investor give money to a start-up, oftentimes in exchange for no apparent tangible benefit other than a sample product and their name in the credits? – this new breed cuts out the old intermediaries to directly address the needs of both investors and businesses in which they are investing. Peer-to-peer lending platforms such as


Funding Circle, and crowd-funding platforms such as Seedrs and CrowdCube, are introducing


Best Execution | Summer 2013


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