Crowdlending helps North West business grow

scanning machine

Whilst the UK digests the news that Britain may be heading for a triple-dip recession, Secure Archive Solutions are proving that it doesn’t need to be all doom and gloom for the UK’s small businesses. The business is going from strength to strength proving viable businesses throughout the UK need investment for growth.

Mick Collins, Founder of Secure Archive Solutions said,

“It’s great that small businesses like us can find new ways to get the funding we need. We’ve got big plans for the future and know we can grow profitably with the right small business finance in place.  FundingKnight provide a fast, flexible service. Our loan was live on their website within a week and is already nearly 40% funded.”

Secure Archive Solutions credits expansion into new areas such as scanning as being a key source of growth, and are backed by a strategic vision to find innovative ways to help the company grow profitably and sustainably.

Secured Archive Solutions launched a new round of funding on www.fundingknight.com at the end of last week and the loan is already 40% funded, demonstrating a healthy interest from investors.

The loan still has nine days left to run so if you’d like to get involved simply add funds to your FundingKnight account and go to Find a Loan to place a bid.  If you’ve not yet signed up with FundingKnight head over to register as a lender.  It’s entirely free to join, there are no fees for taking part in a loan and you can start lending with an investment of £25 or more.

Who does FundingKnight lend to?

As a complete beginner to the world of finance and loans, I am going back to basics again with this post. I want to get right to the very core of what FundingKnight can offer businesses looking for a loan.

Looking at the FundingKnight website, it seems like a very straightforward process but in my mind there must be huge amounts of criteria that you would need to meet before even beginning to think about applying let alone the actual paperwork that organising a business loan must entail.

I am endeavouring to find out more, so I asked FundingKnight a few questions about what their basic principles were behind their lending offer.

FK: We specify the following three points for companies looking to borrow money from us:

  • The business must have at least two years trading history
  • They must be limited companies registered at companies house
  • And finally, they must be UK based businesses with a UK bank account

KK: It all sounds pretty reasonable to me and extremely straightforward, but there must be more things to consider beyond approaching FundingKnight as a legitimate business enterprise? Surely you would want to ensure that you are investing in something that is a sound prospect with a solid financial future? As otherwise couldn’t any old debt ridden business be able to approach yourselves in dire straits?

FK: Yes, that’s completely true, lenders come to FundingKnight to get a good financial return and in our approach, there are three key things we look for and to balance applications against, ensuring we lend to the right companies:

  • Is your business well managed?
  • Are you realistic about risk?
  • Will your business generate enough cash to repay our lenders?

KK: Ah ok, that’s more like it – still, it seems very simple and straightforward and basically clear, common sense which has got to be a good thing.

FK: Yes, we think so and we want to make the process as clear and easy as possible as after all, we want to lend money in the same way that businesses wish to borrow money. It’s a win-win situation!

Many of our lenders also want to give the economy a boost and no doubt as FundingKnight grows many will also use it to lend locally but first and foremost people expect a sound return on their money so it’s important to have some good ground rules governing who can apply.

KK: So you don’t offer loans to start-ups?

FK: No we don’t. That’s not intended to suggest that start-ups aren’t a good investment – some are – it’s just that they typically need a different type of funding and benefit from a different type of investor.

KK: Excellent work. Thanks to FundingKnight for idiot friendly responses and I hope that my ignorance will help other people get involved and take advantage of the clear benefits that FundingKnight offer.

Could a child fund your next business loan?

Monopoly board

How news of a new debit card for children has raised fears for the future of pocket money.

OK, I admit that today’s title is slightly provocative.   After all, it’s not very likely that children will be helping to supply business finance any time soon, but – depending on the nature of your business – they might be some of your online customers and now they won’t even need to badger mum or dad for a debit or credit card number to use.

A story in today’s Guardian tells how children as young as eight will now be able to get their hands on their very own Visa debit card.

The card, developed by PKTMNY is aimed at children who want to shop online, buy certain items on the high street or withdraw cash, although without their parents needing to lend money.

Before too many alarm bells start ringing, I should make clear that parents will be able to set controls to restrict usage and that the card won’t be able to be used to buy alcohol or cigarettes or similar ‘adult-only’ items.

In return for giving their child financial freedom, parents will be asked to pay a £5 joining fee and a monthly membership fee of £1 per child, plus 50p for every cash machine withdrawal carried out in the UK.

Speaking to the Guardian, Mark Timbrell, the company’s founder said, “as a parent I know just how difficult it is to teach children about money, especially as the school curriculum focuses on using cash and visiting banks, neither of which reflect how children see money being used.”

Financial education is an honorable objective, after all, most of us would agree that it’s never to early to start learning the value of money and good financial management but is a plastic card the best way to go?

FundingKnight asked Daniel Britton, author of The Financial Fairy Tales series  what he thought about debit cards for children, here’s his response:

“In my experience initiatives which attempt to teach children about money are most successful if they underpin the mechanics with the key principles such as where money comes from and the implications of spending more than you have. It might seem cute to give an 8 year old a cash card but not if it sets them up for a lifetime of credit card debt”

As a parent, I can see the attraction of letting a child feel independent enough to buy something they’ve saved up for, but I’d worry about severing the ties between hard cash and the things it can buy.

In What’s Mine is Yours, Rachel Botsman shares research carried out by Richard Feinberg, a consumer psychology professor, who studies the influence that credit cards can have on financial decision making.

Amongst other things, Feinberg found that:

  • People who paid by credit card left tips 2% higher than those who paid by cash
  • People who had been exposed to credit card branding bid higher amounts in auctions than their peers who had been exposed.
  • Participants who had agreed to pay for an item by credit card placed bids 113% higher than those who had agreed in advance to withdraw cash for payment
  • Of those who paid by credit card, only 35% could recall the amount

Now, I’m not advocating a return to bartering at the village gates.  Credit cards have their uses and they are part of a healthy financial economy.

I also realise that the new children’s card is a debit card rather than something that extends open lines of credit to children…. but, still, I worry a bit about disconnecting a child from the actual act of parting with money.

If there are no real coins saved up and handed over, does it really have the same benefit for financial education?  Or am I just being over-protective or a barrier to change?

What do you think? Leave us a comment below with your opinion.  Or to help kickstart your own child’s financial education head over to www.financialfairytale.com

A simple guide to peer to business lending: Timescales and security…

So I’m beginning to understand the basic processes and some of the jargon behind crowdlending. As a complete beginner to all this, its not actually as complicated as I first thought.

Last time we established it wouldn’t cost me anything to lend money and invest into FundingKnight. In fact by investing, I would hope to see some returns on my investment. There are no fees to become a peer-to-peer lender and I can set my own interest rates for those to borrow against. On the other side of the process, as a borrower, I would expect to pay between 7 – 12 % interest on a loan I take out plus their arrangement fees (check out www.fundingknight.com for full details). So far, so good. Learning is good.

Now what about timescales? If I lend to FundingKnight, how long would I need to invest my money for? Is there a set amount of time? Or can I access my cash whenever I need it? I asked the bigwigs for some answers…

FK: Our loan exchange will let you sell all or part of your investments on to other people.  So that means you get to combine the benefits of making your cash work harder (than it typically would in an easy access savings account) with access to your money – selling your loan can help you get at your cash if you need it.

KK: so I can basically forward my investment onto someone else and get my money back if I need it. What about security? With all the crazy happenings of the past four years, would my money be protected against an unpredictable market?

FK: The Key difference between crowdlending and bank or building society accounts is that there is no safety net so, however successful crowd lending becomes it will never be the same as putting your money in the bank.  What it does do is offer you a chance to invest in businesses you believe in, support values you want to promote or choose to lend locally within your own community.

In all honesty you shouldn’t use peer to peer lending to invest money you can’t afford to lose but, that said, all of our borrowers have to supply all sorts of financial information and are put through external credit checks in addition to our own in-house analysis.  The FK management teams are investing in all early loans themselves so they have an added incentive to get things right.

KK: Ok, fabulous, I can see how crowdlending makes much more sense to me as someone who tries to live ethically, pursues an active interest in their community and local businesses. It ticks many boxes that you wouldn’t find elsewhere, especially not at a run of the mill high street bank. It seems to me that there is a whole world of opportunity out there that I am beginning to learn about. Stay posted.

Crowdlending vs. crowdfunding… what’s the difference and why does it matter?

blackboard with the word 'debt' written on it

Crowdfunding has become a hot topic recently and the news that Kickstarter has will officially launch its UK operation at the end of this month means that it will probably stay in the headlines.

Whilst the concept is still relatively new in the UK, Crowdcube (the UK’s biggest crowdfunding website) has helped to raise £4 million for small businesses and Seedrs – the first UK crowdfunder to be regulated by the FSA – has a target to help 400 business raise cash from private investors each year.

There is a genuine surge of interest in alternative finance and for many the idea of ‘owning’ a part of a start-up seems really appealing.  Frequently the chance to support an appealing new business idea is a stronger motivator than the potential financial return.  There is a “community funding” aspect to crowdfunding, as it tends to select the businesses that are perceived to benefit people.

So, that’s crowdfunding; Basically the process by which a business, which is often – but not always – a start-up raises funding in return for some type of equity deal or reward.

But what about crowdlending?

Well, we started using the term crowdlending to describe FundingKnight just after writing this blog post on whether peer to business lending needs a new name? (Which in turn took inspiration from the Lend Academy blog in the US)

The key point about crowdlending is that no equity changes hands.  FundingKnight lenders, or those using other P2P websites to lend to individuals or businesses, simply provide “loans”.

In return, they get a rate of return on their savings which very often beats that available from traditional easy access savings accounts (which right now are struggling to beat inflation!)  They take no share of the company, have no say in how the company is run and have no voting rights or other control over day to day operations.

So, why might an independent business that’s searching for business finance prefer to take a loan – otherwise known as “debt funding” rather than sharing out equity in their company.

Knowing that it’s a topic close to the heart of FundingKnight’s founder and CEO, Graeme Marshall, I asked him to share some of his thought on why debt can sometimes trump equity when it comes to funding a business.

Here’s what he said:

“I often see company’s approaching Angels for equity when they really should be looking for debt.  It was one of the reasons I started FundingKnight.  Why would someone running his own business want to burden himself with outside shareholders whose agenda will almost always be different from that of the owners?”

So that’s the first key difference between crowdlending and crowdfunding:

Crowdlending = Lenders make loans and borrowers pay them back.  No shares change hands, no control of the business is given up.

 

Crowdfunding = Investors provide a cash injection in return for equity in the business or some other reward.  Usually, they will then have a say in the future of the business / how it is run.

Next, comes the question of what happens when investors – or lenders – want their money back?  It’s a reasonable question since, after all, circumstances change for all of us.  Today’s rainy day fund is tomorrow urgent repair fund so having a way to access an investment is pretty fundamental.

When it comes to business finance, Graeme says,

“The key question is “how is the equity going to be turned into cash?”  Ideally, Shareholders need to be aligned on this point.  If not, there needs to be a clearly understood strategy setting out how new shareholders are going to get their cash.  Listed companies whose shares are traded avoid this problem…. Private companies are a minefield!”

So, there’s the second real difference:

Crowdlending = A scheduled plan of regular payments is agreed upfront detailing how a lender will be repaid their capital + interest.

 

Crowdfunding = Every business needs its own strategy for how shareholders can realise their cash… and not all shareholders will agree on the best way to do this!

 

And that’s why Graeme believes that profitable businesses who are expanding should look to borrow first:

“If the cash required for expansion is to turn into profitable sales of goods or services, they should have the means of repaying the loan out of these profitable sales.  It’s also a good discipline on a company, as if they are not generating the cash to service a loan, is the expansion really profitable?

At the end of the day, every business who borrows money needs to know how they will pay it back.  If you can’t see this clearly, but the cash you need it clearly building long term value, you need equity.”

Photo

Lights! Carrots! Action!

Following on from our recent posts about the fabulous Muddy Carrot, an online farmers market based in Dorset and the future of marketing for independent businesses [Why content marketing rules the day, 7 September 2012]. It struck us that Muddy Carrot are ticking all the right boxes when it comes to getting closer to customers.

Customer engagement is all about helping people understand what you are about, what you personality is, so how better to get to know the people behind a company than through the use of video.

‘I’m local and I know it…’ ,a two and half minute film, is a great example of how to embrace all the different kinds of people that will visit at your website. A video can engage your audience with a bit of fun and sell your story in a way that your customers will love. Sure, you have to go that extra mile but we think it’s worth it. Check it out here and I defy you not to smile.

Small business funding: Who really provides it?

One of the FundingKnight team recently stumbled across this great video from The Kauffman Foundation.  It’s called “Money Game” and sets out to answer the question, where exactly do young companies get their business funding from?

Well, it might surprise you to know that over half of young companies don’t need any external funding at all.  Over 50% rely on founder savings and then positive cash flow from the business to keep the growth wheels turning.

Of those who do need to tap up others for cash, the list goes something like this according to the Kauffman Foundation…

Credit cards – The single biggest source of business funding after founder savings

Family & friends – Once you’ve exhausted your own savings, next stop is your family and friends who know and trust you and want to help you succeed.

Banks – The video makes a good point that despite the facts that banks steal most of the attention when it comes to small business loans, they actually provide relatively few – you see the businesses that it makes sense for banks to lend to are quite often not the same ones that want to borrow… it’s a catch-22.

Venture Capitalists – VC funding hits the headlines every time a Google or Facebook floats but again, the reality doesn’t quite live up to the hype.  Less than 20% of the fastest growing companies in the US took no VC money at all.

Angel investors, new finance – This is where peer to business lending comes in.  There is a growing trend towards more people lending smaller amounts directly…. if you want to join in, sign up to stay in touch with FundingKnight

Thanks to the Kauffman Foundation for letting us share their video.

About The Kauffman Foundation It is the largest foundation in the US devoted to entrepreneurship.  “Every individual that we can inspire, that we can guide, that we can help to start a new company, is vital to the future of our economic welfare” said founder, Ewing Kauffman.

You can find “Money Game” and many other Kauffman sketchbooks to share here

FundingKnight small business loans… shining the spotlight on our first borrower

spotlight

Like any business, FundingKnight is only as good as the service it provides to its customers.  In our case, those customers are people looking for a better return on their savings and investments or independent businesses in search of flexible, competitive business funding.  Our online marketplace uses peer to business lending to offer small businesses the loans they need for expansion and today we’re proud to shine the spotlight on our first ever business borrower….Leisurebench Ltd.

 Leisurebench logo

The backstory….

Leisurebench imports high quality outdoor furniture, selling to commercial clients in the pub and hotel trade and the public sector and also direct to consumers through their Brackenstyle brand.

They are a family run business with a strong background in the furniture trade run by Saul Musson, Martyn Mayes and their team of specialists.

Leisurebench had tapped into a niche market and was poised for rapid growth. It had orders waiting from blue-chip companies and needed short-term funding to finance stock. The future looked bright, except their normal banks didn’t want to provide funding on acceptable terms.

Their financial adviser put them in touch with us and, after a thorough analysis of their business and credit worthiness, we set about organising a loan that could give them the business funding they needed to grow.

 

Arranging a loan…

We arranged that first loan back in January 2012, working together to build a bespoke loan that made financial sense for both Leisurebench and our lenders.  This first business investment was fully funded by the FundingKnight management team who was keen to test out our processes before opening up future loans to outside lenders.

Firstly, we determined together that a larger loan than the one originally requested would best meet Leisurebench’s needs; we arranged a loan of £110,000.  We also listened carefully to their needs when it came to setting the term and repayment schedule.  As Leisurebench needed to conserve cashflow whilst importing the stock, it made sense to agree an upfront payment holiday.  Once loan payments started, the 7 month loan, funded at 11%, was repayable in 4 instalments.

“FundingKnight gave us flexible terms at the right price; refreshingly simple, common sense banking.  We’re already planning another loan with FundingKnight.”

Saul Musson, MD, Leisurebench

 Brackenstyle logo

Planning for the future…

We’re already talking to Leisurebench about how we might work together again in the future and, of course, we have funds ready to lend to other well managed businesses with strong cashflow.

To find out more about the Leisurebench and their high quality outdoor furniture, visit:

www.leisurebench.co.uk – for commercial customers

or

www.brackenstylegardenfurniture.com – to buy direct

The future of savings and investments

scientists and test tubes

We’d all love to have a crystal ball; Be able to gaze into the future and see clearly what lies ahead.

Increasingly, though, it’s hard enough to keep up with the pace of change, let alone predict the future.

In his new book, How to Thrive in the Digital Age, Tom Chatfield suggests that:

“The impossible facts of our age are only just beginning….  The pace of these changes is another unprecedented thing.  Television and radio have been with us for over a century; print for more than 500 years.  Yet in just two decades, we have moved from the public opening-up of the internet to its connection to more than two billion people; and it has been just three decades between the launch of the first commercial cellular-phone system and the connection of more than five billion active accounts.”

This radical change in the way we live has caused massive upheaval.  The record industry has found itself competing with instantly downloadable tracks that have made the CD single virtually obsolete.  Books are quickly morphing into ‘virtual’ e-books whilst amazon dominates the sector and everything from groceries to cars can be ordered online and delivered at the touch of a button.

In short, the way we use technology has changed not only the products we use, it’s changed us as well.

Some call it being ‘wired for distraction’; others point to the ‘always connected’ society and worry about the impact on attention spans and personal relationships.  Whatever your view, it’s clear that we’ve become more short-termist in our thinking and more demanding when it comes to products and the choices we’ve made.

So, really it’s no surprise that they way products are designed and sold has changed too, is it?

Or has it?  What’s really surprising is that when it comes to the financial sector not that much has actually changed at all.  Yes, you can now get your bank balance via text or use the internet to check interest rates but those changes are just channels, different ways of finding out the same answer – which is that financial products are no longer meeting the needs of real people.

In a recent study by Weber Shandwick, 50% of respondents agreed with the statement that “many financial products currently available don’t fit their lifestyle or their individual need.”  Nearly four in five agreed that low interest rates make savings accounts a poor investment.

So, what needs to change?

Well, Weber Shandwick suggests the industry must “start from scratch with a completely new suite of products that will meet the needs of the short-termists.”

In fact, it’s not that easy.  Meeting the needs of today’s consumers means offering fast, flexible and transparent business loans that will help the economy grow – yet banks have to focus on rebuilding their capital bases.

Meeting the needs of today’s savers means offering higher returns, yet banks are struggling to return to profitability and money is scarce.

So whilst we do need to take a new look at what is the best investment and start offering savings and investments that yield a decent return rather than typical deposit accounts that pay barely more than inflation, it may not be the banks that are able to do it.

Meeting the needs of today’s society means giving some thought to collaboration; Providing ways for people to help each other out; Finding products that are good for all concerned rather than a winner takes all, zero sum game.

It’s hard to see how banks can deliver this change singlehandedly.  In reality, private sources of business funding, and peer to peer lenders like Funding Knight who can offer both competitive loans for business and higher interest savings accounts must step in to help solve the problem.

At FundingKnight we’re excited because we think it’s not just technology that’s changing, but the whole way we do business.  We think the days of ‘computer says no’ and poor value for money are starting to end, and we’re keen to accelerate the pace of change.

Learn more about how you can pool your funds with others to make your money work harder

Or

Apply for flexible and transparent funding for business

Or simply stay in touch.  We’d love to keep you updated with progress.

Photo used under creative commons license

Business funding: The green shoots of growth are there but business loans must improve

green shoot on black and white background

Business funding – just what is the issue limiting funding for business in the UK?  Do banks not want to lend? Or, do businesses not want to borrow?  That’s the long running debate that’s run and run throughout the British media, but, whatever the case might have been, new research by Experian shows there are plenty of business investment opportunities now.

 

Despite ongoing economic difficulties, British small businesses continue to demonstrate high levels of growth and present ripe opportunities for sound business loans. That is, at least, according to the latest research carried out by Experian for the Business Growth Fund (BGF).

The survey found that there are currently 4,000 mid-sized businesses in the UK who can boast turnovers of between £2.5m and 3100m and who have grown by at least 33 per cent in the last three years.

Investing in one of these 4,000 small businesses via a small business loan would surely represent a sound business investment, as well as helping to get the British economy back on track, but there’s a whole raft of opportunities beyond that.

These 4,000 are merely the independent businesses classified by the report as ‘high growth’. In all, there are 25,533 UK companies with turnovers of £2.5m – £100m and whilst not all of them are positioned for expansion, many are established businesses with a clear route to exploit additional business funding.

Stephen Welton, CEO of BGF, commented:

“This data highlights that despite challenging market conditions, there is a steady base of UK (small businesses) and fast growing UK companies that continue to thrive across the UK and that operate in diverse industry sectors.  It demonstrates the resilience of the group and the underlying quality of UK entrepreneurship.  This is good news for the overall UK economy as these companies play a significant role in job creation and innovation and are a critical part of the economic recovery. “

It is Welton’s job to use the Business Growth Fund to assist some of these companies but it’s becoming increasingly clear that private sector help is required.

The banks are unable to meet the needs of UK businesses and government funding initiatives are, at best, a drop in the ocean.  We were glad to hear that David Cameron has asked the Chancellor what more can be done to support British business and welcome his promise to do “even more” to promote growth.

Perhaps regulating peer to peer lending should feature on the to-do list.  FundingKnight would definitely support that cause.

Photo used under creative commons license