In the past, if you needed money to start up a business your local high street bank was the obvious first port of call. Compile a business plan, book an appointment with the manager and walk out with a loan, if not for the full amount you were after, then at least a significant proportion. Job done. Then the financial crisis of 2008 hit and, although the first two stages continued as normal, what happened after the introductory handshake and a perfunctory glance at your sheaf of spreadsheets, was a grilling about the financial track record of your business. Proof, if you like, that you have met loan repayments in the past and have the cash flow to continue those obligations in future. And for those for whom ‘start-up’ means just that, from scratch, there would inevitably be a polite head shake and a showing to the door empty handed.
Of course, there has been some kind of rebound recently. Just last week The Telegraph reported new figures from the Bank of England indicating net lending from banks to SMEs had grown by more than £600m in the first three months of the year. The newspaper continued: “That’s in marked contrast to the situation in 2014, when bank lending to SMEs fell by an average of £500m every quarter.”
Unfortunately, for most new companies the banks’ efforts are still too conservative. A quick glance at the guide we compiled highlighting lending success rates show a disparity between those applying for funding from banks (79%) and those who actually get it (22%). By contrast, alternative forms of lending often offer a greater chance of matching those after ready cash with the people and firms willing to plough it into your company. If that sounds surprising, remember that banks are lenders, not investors. By extension, banks are not bothered about consciously making equity investments in businesses. Others, however, are…
Here at Merchant Money we’re keen to spread the word about these less traditional options. According to research 56% of SMEs are unfamiliar with any form of alternative finance so the handy guide we’ve created should help. Whether it’s government/public money you’re looking to tap into or a credit union/building society, angel investors, venture capitalists or some good old-fashioned philanthropists, we’ve compiled a list of online resources to explain the differences, and the best platforms to access each one.
Of course, it would be remiss of us not to mention where Merchant Money fits into the web. Put simply, we offer flexible business lending to SMEs across the UK. We pride ourselves on fostering long-term working relationships with all of our clients; so while we rely on fast, systematic decisions, we value talking with our clients to learn more about each business and their needs.
This model offers an attractive alternative to bank lending because, as well as there being less chance of being denied funding, as already discussed, lenders like us are also more likely to understand niche markets. We’re aware of the unique financial challenges SMEs face, so we assess each entrepreneur individually. There’s no ‘one size fits all’ solution to growth, so we’ll look at each application on a case-by-case basis and try to tailor our terms to what’s best for your model and circumstances.
Alternative lenders also appreciate that credit scores shouldn’t be the be-all and end-all when deciding whether a loan request is green-lighted. They’ll look at the whole picture, from social network connections to real-time shipping schedules – because they can, they aren’t stifled by the same regulations and tick boxing your local bank branch manager will be. Plus, many can get capital to you faster as well – think a matter of hours for the whole application process to complete, rather than the months that have often added up in the past.
Of course, there may come a point in your company’s life when a bank loan is a more realistic possibility. With a couple of years of trading behind you, it’s much easier to present a proven business model. To get there, however, think outside the box to bag that start-up loan that’ll let you move things forward.