Several of my clients have had quite interesting experiences arranging loans with banks over the past year or two. I guess this isn’t news as, in spite of the headlines saying that more money is being made available to help fund growing businesses, the terms can be demanding and there isn’t a lot of appetite for risk. So, what is an acceptable and sustainable risk for a lender then? Surely if you are taking relatively little risk the interest rate should reflect it, but alas I can’t say that has been too apparent to me either recently. Investment cash can be very hard to come by and it’s expensive.
What can we do then if there is such a restriction on the funding supply side? There is an unerring rule of any relatively open market that if there is a good return to be made, at an acceptable risk, people will find a way to meet the demand. It should come as little surprise then that more imaginative forms of loan financing have become available of late to address the dearth of cash available for smaller businesses. It seems that we no longer need to rely solely on banks to mediate between “us” in search of business funding and “them” with money in their pockets looking for a good investment opportunity. The supply side is evolving to meet so far stiffled demand.
Several years ago I worked with folk who used small groups of private investors to fund buy to let property investments and there have always been private individuals to fund things, but now we have the likes of Funding Circle www.fundingcircle.com, the most prominent, to me at least, in a new breed of lenders.
One of my clients recently borrowed a high sub £100k sum from them in a couple of weeks, which seemed like a miracle compared to the interminable discussions that they had been having with banks over the past couple of years. Even though the company has a good credit record and a history of repaying debt to plan.
The whole Funding Circle experience turned out to be a relatively painless experience and, whilst the rate is market driven, there is a fixed finders fee and with an extremely wide spread of risk, amongst many very smaller investors, remarkably few hoops to jump through. I should perhaps add that the client in question, who I have now worked with for many years, has a great business with a lot of opportunity to grow further, it just needed some cash to help it on its way.
I am often asked for help in funding businesses that have less potential and that will always be more of a problem. In spite of what some people seem to think, you don’t have a right to borrow money just because you think you have a good business idea, you need to prove to others that it is a good business idea too. That may seem a simple idea but the standard of proof required is actually quite high and so it should be. There is actually a lot of money out there looking for a good home, there are just not that many around. To my mind getting the business fundamentals right always comes first, something this client and I have worked on for some time now and it is now really beginning to pay off, with an almost immediate breakthrough with our next phase of growth, following this funding.
One of the “5 secrets” that gave this blog its name is about leveraging your businesss at the right time and this often requires some extra cash. Thankfully, now that cash is a little easier to come by.