Business owners: how alternative finance can help you ride out political uncertainty

Business Insights
18/10/2017

Angus Dent, CEO, ArchOver.


A lot is being made of the economic impact of Brexit, even before the UK has officially left the European Union. New research states that one in five UK companies have seen revenues drop as a result of Brexit. It’s clearly concerning that companies feel their income is being damaged by political uncertainty. But businesses mustn’t assume that economic problems are inevitable – the real economy is still healthy, with investment still flowing into the UK and many major companies reaffirming their presence in the country. In these boom days, companies should take control of their own destiny and push for growth.


For example, the UK’s start-up scene is something we’re rightly proud of – the UK is a centre of innovation. Tech investment in the UK was £6.8bn last year, which is more than double that found in any other country in Europe. France, in second place, only secured £2.4bn. That’s a strong base to build on.


But there are a lot of companies in the mid-market who find it much harder to get access to the finance they need. Once a business graduates from sexy start-up full of promise and astronomical growth models into a steady going concern, it often becomes more difficult to attract the interest of investors.


Investors and SMEs


Venture capital tends to gravitate towards fast-growing companies in the early stages of development, looking for the next Uber or Whatsapp. However, for companies with a few million pounds’ worth of turnover and a more accurately predictable growth rate, that VC interest begins to turn away in favour of shinier new companies. This makes it hard for established companies to achieve their goals and fund new projects.


There’s another problem: even if you can attract VC investors, the more investment you take on, the more diluted your share in the company becomes. That’s a necessary evil, but as a mid-market company you might not want to sign away even more – you’ve probably made sacrifices along the way already, so why add more if it’s not absolutely necessary? Add the fact that VC funding often takes years to come through, and the prospects for mid-sized SMEs don’t look great.


Restrictive banking


At the other end of the scale, the traditional banking fraternity is equally unhelpful, but for the opposite reason. Rather than looking to back the next big sensation, the banks remain extremely nervous after the 2008 crash, and are cagey about handing out loans to mid-market companies that don’t have multi-million-pound security. Loans that are approved often come with punitive terms, a lack of flexibility and small chance of an increase or extension. For companies trying to react quickly to the market, that makes it hard to change direction quickly and seize new opportunities.


In short, many mid-market tech companies are ignored by VC because they’re not edgy enough, and get declined by the banks because they’re not secure enough. But these mid-sized companies are the backbone of the UK economy, the crop of successful brands which made it out of the initial scrum and built a steady income and a route to profitability. Real success for the UK means helping these companies keep going on that route – so how do they find the money to grow?


Taking the road less travelled


The answer is that they need to widen their outlook and go beyond the usual funding routes. By going down the P2P lending route, mid-market companies can get access to funding much faster, with a far greater level of flexibility and a much lower minimum threshold for borrowing. The crowd can provide rapid, impartial funding to businesses with a clear path to profit where traditional banks are too cautious to invest, and small P2P platforms can provide a more personal, face-to-face service.


Mid-market companies may not need an injection of several million – they may just need a few hundred thousand now, and a few hundred thousand more in six months’ time in order to fund specific projects. P2P gives them the ability to borrow in stages, or to increase their loan after a few months if they need to. What’s more, by selecting a P2P platform that secures its loans against accounts receivable or recurring revenue, businesses with a steady income stream can avoid having to put up their assets or personal property as security.


Mid-market SMEs are the heart of British business, pushing forward innovation and enterprise. Rather than waiting for the banks and political classes to set the agenda, they should use the alternative financing options at their disposal to fund new projects and drive growth. Brexit doesn’t have to be a business disaster – now is the time to take a new approach to funding and push for success. And at a time when institutional purse strings remain tightly pulled, P2P lending offers these companies a simple and secure way to finance their growth.


W: www.archover.com