40 alternative lenders


Considering alternative financing options


Changes in the financial climate over the past half decade or so has seen a change in the landscape of how SMEs and corporates alike fund their business on a day-to-day basis, writes Jim Meechan, consultant, Pitmans LLP


All you need to do is to have a look at statistics produced by The Bank of England on a quarterly basis to see the continued downward trend in “traditional” bank lending. How are businesses continuing to function on a day-to-day basis? – the answer is to ensure that their “cashflow” continues and this can be achieved by considering “alternatives”.


There are a number of alternatives some of them being around for a number of years but were further down the pecking order whilst the traditional forms of bank funding was more readily available ...


There are examples out there showing that one peer to peer lending platform has grown significantly since it started earlier this year ...


There are a number of alternatives, some of them being around for a number of years but were further down the pecking order whilst the traditional forms of bank funding was more readily available. Invoice finance for example was considered by some as almost being the lender of last resort to being an accepted part of working capital finance for all sizes of business.


Government initiatives via the Enterprise Finance Guarantee loan scheme (EFG) seems to be moving in the right direction. Lending from this initiative exceeded £80 million in the second quarter of 2013. Under the EFG, the Government acts as a guarantor on 75% of individual bank loans of between £1,000 and £1m. The scheme was originally designed to assist companies that have viable business proposals but little or no security to offer against a loan.


One of the newer forms of alternative finance is via peer to peer lending. This has been around since 2005 but of late has been courting quite a bit of press coverage as well as government scrutiny. Peer to peer lending is “what it says on the tin” – lending money to peers without having to go through the banks or other financial institutions. Peer to peer lenders are individuals who have some cash to invest with the hope of a better return than they would normally get on a bank deposit for example. Returns vary and can be anything from between 6% and 12% pa. At the moment this is regarded as a loan that is not subject to regulation however this will change next year when the Financial Conduct Authority (FCA) will regulate the peer to peer market.


So how do you get a peer to peer loan? Have a look online as most of the peer to peer lenders are web based – it’s fairly straight forward and it takes much of the administration and red tape associated with bank lending out of the equation. As a borrower, you would register with a company and you would then be put into a category based on your credit score. When grouped, the lender can decide where they want to invest their money.


There are examples out there showing that one peer to peer lending platform has grown significantly since it started earlier this year and has introduced over £10m of loans to the SME community ranging from £25,000 to £1m. The loans have been a mix of house building, leisure and renewable energy. This particular “loan platform” has shown some remarkable growth in a fairly


www.businessmag.co.uk THE BUSINESS MAGAZINE – THAMES VALLEY – NOVEMBER 2013


short period of time although it is acknowledged that it is the proverbial “drop in the ocean” when compared to more traditional bank lending facilities.


As awareness of the peer to peer market grows and the new regulatory environment kicks in next year, peer to peer may well gain a foothold in the financial mainstream – a cautionary footnote however – already some industry insiders are suggesting that the low interest rates and negative sentiment towards banks will not last indefinitely and the attractive returns for small investors will be undermined if default rates rise. It is too early to get a proper steer on this as the loans in the main are fairly new. It is important that sites are accurate and transparent in relation to the information they provide (good or bad). If the sector is facing a bad-debt hurdle, the fear is that the industry as a whole could be impacted by one or two platforms failing to clear it and some investors losing some of their investment as a result.


Finally and probably one of the easiest forms of alternative funding – do you have rich relatives? A loan from a supportive family with a bit of cash to spare can provide the funds required at perhaps more competitive rates and less onerous covenants than from a traditional commercial lender – hopefully the loan will be repaid within the agreed timescale and framework thus avoiding family disputes.


As with all decisions relating to finance it is important that proper advice is obtained. We at Pitmans have a wealth of experience and would be delighted to assist with any projects being considered.


Details: Jim Meechan 0118-9570220 jmeechan@pitmans.com www.pitmans.com/banking-finance/


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