Mid-market company or SME seeking debt finance? It’s time to look at alternatives beyond the banks
29 June 2015
In March this year, amid the fanfare of his final Budget before the general election, George Osborne made a little-noticed announcement about a change to the rules on ISAs. From the autumn of 2015, the range of investments eligible for inclusion in a stock and shares ISA will be expanded – a widening that’s likely to include peer-to-peer (P2P) lending.
Four months earlier, in late 2014, PwC – in collaboration with the University of Cambridge and the UK’s innovation foundation, Nesta – published research into the UK’s alternative finance market, including crowdfunding, P2P lending and invoice trading. The study found that some £1.74bn was raised through alternative finance intermediaries in the UK in 2014, a figure set to more than double this year to £4.4 billion.
These two announcements underline a fundamental shift now under way in the funding options available to UK businesses – especially SMEs and lower mid-market companies based in the regions outside London.
What shift? Across the country, increasingly we are completing deals and looking at options to raise debt in this alternative finance market. The options we are advising on can range from simple, short-term invoice finance based solutions to longer-term “mini-bond” arrangements, structured more akin to a commercial loan you would expect to receive from a bank. I believe these deals are just the start of a growing trend of companies accessing capital in this way.
However, this this market is not right for every situation and the growth in this market doesn’t mean the banks are refusing to lend. In many cases, the banks are encumbered by risk criteria and collateral requirements that alternative lending platforms don’t have to apply. And where banks can’t advance funds, they’re increasingly referring the customer to alternative (albeit often more expensive) sources of finance – and even working with those sources to help the company get what it needs.
At the same time, new innovations are emerging that will help to expand alternative finance still further and faster. For example, specialist platforms are being created to lend to renewables businesses, capitalising on the tax reliefs available in the sector. With the imminent relaxation of the ISA rules, this is precisely the type of area that might attract retail savers.
The PwC research report I mentioned earlier found that 44 per cent of SMEs surveyed were familiar with at least one type of alternative finance, but that just nine per cent had approached an alternative platform for funding.
At root, arranging lending is about connecting individuals: bringing together people who have capital to lend and people who want to borrow. With alternative finance, the principle’s the same – all that changes is that typically there’s an online lending platform in the middle, rather than a traditional bank. For SMEs and mid-market companies across the UK, the message is clear: alternative debt funding is now mainstream. Isn’t it time you took a look at what it could do for your business?