Your Business With James Caan 2017 - 56
High-street banks aren't your only option
when it comes to raising cash
o you need money to start your
business or to move it on? The
bank used to be the obvious place to
go. Not any more. Billions of pounds
are invested in small businesses every
year from alternative ﬁnance sources,
and that number is set to grow.
A revolution has occurred in the way
small businesses ﬁnd funding, owing to
a combination of the ﬁnancial crisis and
the wonders of the internet. Welcome
to the world of alternative ﬁnance.
"Most people will make a bank
their ﬁrst port of call," says James
Caan, who believes you may be better
oﬀ looking elsewhere. "Banks lend
money only to people where there's a
component of security. What you're
looking for is risk capital, because
when you start your own business,
you have no certainty or security."
Banks have had to tighten their belts
since the worldwide ﬁnancial crash of
2008. That has made them turn down
a lot of loans they would have agreed
to a few years ago. So where do you go
for the dough? Fortunately, alternative
ﬁnance sources have sprung up to ﬁll
the funding gap.
Non-bank lenders such as Ezbob, Iwoca
and Merchant Money typically oﬀer
ﬂexible business loans of £1,000 to
£120,000. Traditionally, borrowers
apply to a commercial loan provider
via their website. Fill in an online loan
application and you can expect to
receive a phone call to discuss your
business plan within 24 hours.
These companies promise quick
decisions, and you may be surprised by
the charges and interest rates they oﬀer,
as they can be lower than those oﬀered
by banks. They may also be able to loan
you money for a longer period than a
bank and are likely to look at you more
kindly than a bank if you have a poor
credit rating. Some also oﬀer peer-topeer ﬁnance (see below).
On the downside, non-bank lenders
usually expect some security. This may
be in the form of be a personal
guarantee - when someone else
guarantees the loan for you - or may
require loan repayment insurance.
There are sharks out there, so make
sure you borrow from a reputable
lender listed on the Financial Services
Register (cfa.org.uk/register). There are
also companies out there that compare
diﬀerent loan rates and ﬁnance options
for you for a fee and ﬁnd the most
suitable option for your needs.
Peer-to-peer lending is growing quickly
in the UK, thanks again to the internet.
Websites like Zopa and RateSetter have
lent more than £700 million to the UK's
small lenders. Such websites act like
online market places, where borrowers
and lenders can ﬁnd each other. Both
borrowers and lenders have to go
Peer-to-peer lending is growing quickly
in the UK, thanks to the internet
through a vetting process before they
are allowed to either pitch for money or
lend to small businesses.
Once your loan application has been
vetted, individual lenders can see your
business plan. A number of them can
chip in to get you up to the loan amount
you want. The loans can be guaranteed
or unguaranteed, although interest
rates on unguaranteed loans will
probably be higher. Beware, though. If
you don't raise the total you've asked
for, you won't get any of the money.
ThinCats is another company oﬀering
peer-to-peer loans. It auctions loans,
which lenders can bid on, with interest
rates decided by the marketplace.
Traditionally, "angels" were wealthy
individuals investing alone in a new
business in exchange for part-ownership
or equity. That was before the internet.
Now, angel funding often refers to a
number of wealthy people chipping in
to fund your business via websites such
as Seedrs or Sir Richard Branson's
BnkToTheFuture. Another is Angels
Den, which partners you with a lead
investor - much like on BBC's Dragons'
Den - who will oﬀer mentorship,
marketing tips and business nous.
Just like peer-to-peer lending, your
business plan is vetted by the angel
funding website. If it is satisﬁed that
your plans look good, the site puts your
proposal to its list of vetted investors.
How should a small business choose
between peer-to-peer and angel
funding? The application process is
similar; the diﬀerence lies in what you
give away to get the cash. When you use
a peer-to-peer lending service, you are
borrowing money and accruing debt.
With angel funding, you don't owe
anything but you are giving away
part-ownership of your business. That