In the current business environment it is becoming increasingly important for small businesses to secure funding from new sources, with banks becoming more cautious about who they lend to.
Recent research by asset-based lender Independent Growth Finance (IGF) found that traditional lending channels remain slow, with 53 per cent of businesses typically having to wait at least a month for a funding decision in 2018. As a result, 27 per cent of businesses now use invoice financing and 22 per cent use other asset-based lending facilities.
While UK SMEs continue to be more reliant on bank lending than those in many other developed countries there are an increasing number of investment options available. With innovative funding organisations and schemes emerging all the time, here are some interesting examples to consider:
Small businesses can take advantage of a number of government-backed investment schemes.
The Business Basics Fund recently announced its first round of funding for small businesses piloting emerging technology products. The aim of the fund is to boost the productivity of SMEs. The first round of £2 million was distributed between 15 firms, including a project involving artificial intelligence in the retail and hospitality sector.
Meanwhile, the government-based British Business Bank recently committed up to £150 million in new peer-to-peer lending for UK small businesses via its existing partnership with alternative loans platform Funding Circle.
In Scotland, the government recently made £100 million available to small businesses to help with their expansion plans. The Scottish Growth Scheme will offer SMEs the chance to apply for financial support in the form of microfinance loans of up to £25,000, debt or loan finance of up to £100,000, and equity investment in deals of up to £2 million.
Innovative small business lending
In October 2018, small business lender iwoca released Open Banking for all customers with a Lloyds Bank account, making it the first SME lender to connect with any of the nine largest UK banks through the Initiative. By securely linking their Lloyds Bank data, business owners can now provide iwoca with up to five years of transaction history. This promises to reduce the loan application process to less than 60 seconds.
Another alternative finance provider doing interesting things is peer-to-peer lender ThinCats, which announced a £300 million SME funding programme in partnership with global asset manager Insight Investment in September 2018.
ThinCats lent a total of £112 million to UK SMEs in 2018, more than double the figure of the previous year. The organisation has lent more than £350 million to UK SMEs in total and, as of the beginning of this year, has capital of £800 million to lend to UK SMEs after recently-confirmed funding agreements.
One of these agreements was with BAE Systems Pensions, one of the UK’s biggest pension funds, which will lend £200 million via the ThinCats online platform.
There are a number of contests that SMEs can take part in to secure funding. These are often focused on particular sectors.
For example, a group of 246 SMEs from 24 countries was selected for the EU’s Horizon 2020 funding in October last year. The €12.2 million in funding came from the EU’s research and innovation programme, which the goal to get innovations to market more quickly.
Applications for Shell's Springboard 2019 funding scheme to support low-carbon UK enterprises also opened in October. The national programme awards £350,000 in funding to UK-based SMEs with innovative models or products that reduce carbon emissions and are economically viable. Six regional winners each receive £40,000 of equity-free funding, while the national winner will be awarded an additional £110,000.
New technology is being used innovate around funding. For example, a global finance platform was recently launched that enables investors around the world to fund short-term loans to small businesses [using blockchain technology](https://www.bridgingandcommercial.co.uk/article-desc-13959_New blockchain-powered SME finance platform launches).
The Lithuania-based start-up Debitum Network launched the Abra 1.0 platform in September with an investment portfolio of €500,000. The platform is available to businesses in 15 countries and combines features of cryptocurrency transactions and traditional lending. The system’s internal processes are powered by blockchain technology, with the platform providing loans of between €10,000 and €1 million.