Alternative Financing for SME’s
Getting access to finance is an increasing challenge for small, micro and start-up businesses. Whilst Small businesses provide a significant contribution to the UK economy, accounting for 60% of the UK jobs and half of GDP (Source: Department for Business, Innovation and Skills, 2010), many are struggling to get the credit they need to grow their business.
According to the Federation of Small Businesses Survey of members, Oct 2011 “One in three entrepreneurs who apply for finance from the high street banks is refused credit. For 60% of these, this means that they miss out on their growth opportunities.” In many cases SME’s have little choice but to turn to higher cost credit options, with users having quadrupled in the last four years to four million Customers.
So, what are the alternatives to the traditional high street lenders, who seem to be increasingly unable to meet the financing needs of small businesses? Well, there is a quiet, but growing revolution that comes in the form social funding enterprises – on-line crowd funding, community banks, credit unions and other financial mutual’s. In time, this growing sector could widen and provide a significant, viable, and affordable alternative;
- Crowd funding is gathering pace, via websites such as Crowdbnk the opportunity for entrepreneurs, charities and other projects to raise money collective from a wide number of people who wish to support and invest in an idea/business/project. In return the business can offer shares or rewards, providing a cost effective alternative to traditional sources of funding, whilst putting the feel good factor back, by allowing people to support enterprises and projects that they feel passionate about. An interesting article can be found at Telegraph article on crowdfunding.
- Community finance - credit unions and other financial co-operatives and mutual’s, or social enterprises and charity banks known as Community Development Finance Institutions (CDFIs) lend money to micro-enterprise businesses, social enterprises and individuals struggling to get finance from high street banks and loan companies. CDFIs are small, independent organisations, many of which are part-funded by Government departments and agencies, whose main aim is to support communities by providing affordable finance. In many cases they are able to invest more time with customers, along with providing some levels of business support and financial advice. There are currently 62 CDFIs providing community finance across the UK, you can find details of your local CDFI at My-nearest-CDFI.
As well social funding steams, there are also a number of Government supported loan and investment initiatives available, including:
- Start-up loans for 18-30 year olds, whereby a loan provider in your region is identified for you. Successful applicants are required to pay back the loan within five years at a fixed-rate of interest – currently 6%.
- Enterprise finance Guarantees (EFG), a loan guarantee scheme to facilitate additional lending to viable SME’s lacking adequate security or proven track record for a normal commercial loan. EFG is a demand led scheme complimentary to commercial lending. The government provides the lender with a guarantee for 75% of each individual loan.
- Seed enterprise Investment scheme, designed to help small, early-stage companies to raise equity finance by offering significant tax relief to investors who purchase new shares.
Whichever route a small business decides to pursue in terms of sourcing finance, a carefully considered business plan to help demonstrate to potential lenders or investors your vision, goals and strategy is vital and will significantly improve your chances of a successful application. An essential part of this is the presentation of your financial data, and the ability to demonstrate sound financial management of the business, including;
- Financial information covering the last three years of trading (if available) – accounts audited, if available) and key accounting ratios
- Financial forecasts for the next three to five years, highlighting key underlying assumptions
- A cash flow forecast covering the next two to three years (or in the case of a start-up or turnaround, until the business moves into profit), indicating the amount of funding needed;
- How creditors, capital expenditure, debtors and stock will be managed over the forecast period.
- Demonstrate how potential lenders will get their money back, or investors will see the value of the business and therefore their shareholding grow & where the risks are and the impact of any deviation from the plan – in particular when it comes to funding.
Smeebi started life in 2011 in Finland, after its founders recognised a genuine need for a business intelligence solution designed specifically for small and medium sized businesses. Their vision is to develop a powerful, yet, user friendly solution for SME’s. Unlike most other enterprise BI products on offer, Smeebi has been created around an affordable subscription based model, simply ready-to-go online.
Smeebi are passionate about empowering SME’s with a better understanding of their data, and remain focused on developing solutions that solve some of the key challenges that small businesses face; saving time, keeping track of what’s going on, and ultimately, making better informed decisions. www.smeebi.com.
Smeebi are currently working with Bean Partners, a London based management consultancy and finance house who help early stage businesses with growth funding. Interested in investing in Smeebi? Please contact Tom Mills at Bean Partners or alternatively contact Rob Connell, CEO of Smeebi; [email protected].
Tom Mills, Partner
14-15 Lower Grosvenor Place
London SW1W 0EX
Phone: +44 20 7931 9500 Email: [email protected]