Can crowdlending regain trust in business finance?

trust

2012 ended with a flurry of news about crowdlending and peer to peer lending and it seems that January has continued the trend with plenty more articles cropping up to discuss how alternative finance can help restore faith in a beleagured financial system and  provide the business funding that our economy needs to grow.

Since the whole concept of peer to peer is about sharing, we thought it would be good to share one of our favourites, a post from David Pitcher published over at SunZu (previously ecademy).  David’s post asks whether peer to peer lending can restore trust in finance for business and has sparked some interesting comments.

Recently I saw a T-shirt on which was printed:

‘Give a man a gun and he can rob a bank.
Give a man a bank and he can rob the world.’

Some businesses are still feeling betrayed by banks because they have not been lent the finance they need to develop or continue trading.
It seems to me that a key issue about banks is about their trustworthiness . After all, a run on a bank is only the loss of trust that the bank can keep our deposits safe even if they are actually safe.

Trust

Trust is the basis of all business and personal dealings. No amount of legislation can actually replace that personal and corporate trustworthiness, established, tested and proved over many years. Sadly and foolishly some unscrupulous businessmen including some bankers have done the unthinkable – for personal gain they have ‘at a stroke’ betrayed and squandered that ancient trust.
The response from a friend who is a retired senior banker was one of anger and disbelief and he simply asks ‘Whatever happened to ‘my word is my bond’?’

To read the rest of David’s article visit the SunZu website

FundingKnight Likes… The Financial Fairytales

front cover of 'The last gold coin' book

In our recent post, Could a child fund your next business loan? we were pleased to be able to include a comment from Daniel Britton of The Financial Fairytales, a company who hold financial responsibility for children very close to their hearts. We’ve invited Daniel to tell us more about his quest to raise the levels of financial literacy amongst children and hope to welcome him to the FundingKnight blog for a guest blog or two in the new year, but, in the meantime, we thought it was time for The Financial Fairytales to feature in our ongoing series of  ‘FundingKnight Likes’ blogs.

The Financial Fairytales are a company based in the United Kingdom founded by British author and entrepreneur, Daniel Britton. The company produce books for children and schools all around the world in order to educate, empower and inspire their young readers to become financially literate, learn about the key elements of the world of money; spending, saving, borrowing plus, not forgetting the basic principles of what money actually is and why we have it.

As we all know and experience the influence money has on every aspect of our daily lives, it makes complete sense to educate children from a young age and hopefully instilling a conscientious approach to spending. In fact there’s no doubt that there are many adults out there who would benefit similarly from simple educational techniques related to their finance and savings.

Founder Daniel Britton says:

“By teaching your children about money you take charge of their future financial and economic wellbeing.  Recent studies have shown that over 2/3rds of parents believe that children aged 7 or younger should be taught the financial and money principles contained in The Financial Fairy Tales.

Lessons in financial awareness or resources which support financial literacy for kids are sadly lacking from the curriculum in many schools.”

By providing a foundation education in economics for primary school aged children, The Financial Fairytales maintain that it will help prevent cycles of bad habits potentially instilled into children by their parents. Having come through the worst financial crisis of all time in very recent years surely that can only be a good thing?

Others argue that perhaps we should let children be children and leave their childhood to less adult endeavours, but you know when learning about something serious is as fun and easy to digest as Britton’s books, you are onto a good thing.

Find out more about The Financial Fairytales books and recommendations here.

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.

FundingKnight Likes… Brixton Pound

Recently I wrote about the newly launched Bristol Pound and why we at FundingKnight were fans of this community orientated and hyperlocal currency.

The Bristol Pound is one of few other similar projects taking place around the UK so we thought we would write about one of the first and the original urban scheme, the Brixton Pound.

In the same way as other local currencies, the Brixton Pound was designed and implemented to keep investment and spending in the local area.

By exchanging your run of the mill ordinary sterling into Brixton Pounds you can spend your hard earned cash in a plethora of Brixton businesses helping them to increase their profits.

It’s simple, you invest in your community and as a result your local area improves. It not only allows you to help grow home-grown businesses but also, if you use your B£ electronically, you get an additional 10% spend on your British Pound, thus making your money go farther with an added value local bonus.

One recent additional string to the currency’s bow is that if you work for Lambeth Council (where Brixton is located) you can now request to have a percentage of your wages paid in Brixton Pounds. A fabulous idea that really shouts it support to the civic scheme. Plus staff opting for this will receive the additional 10% bonus on their pound, essentially giving staff a pay rise well above the average local government salary increments.

Lambeth Council workers will also have the option to donate their monies directly from their wages to local charities, community groups and social enterprises of their choice.

By starting schemes like the Brixton Pound and others it allows local neighborhoods to take control of their communities and maintain the fantastic vibrancy and creativity that is unique to their area. In turn positivity breeds positivity, improving lives and environments whilst generating a powerful multiplier effect that extends and creates opportunities for more and more people every time a B£ is spent. That alone is more than reason enough to like, if not love, the Brixton Pound. Get involved and find out more here.

We like… West Country Radio

One of the reasons we set up our crowdlending business was to provide a way for people to invest in the things that are important to them. You see a business model you like, an ethical standpoint you admire or simply a gap in the market and then invest into a company that fits with your beliefs. You have the power to make good things happen.

As we build up our business we hope to make that dream a reality but in the meantime, we’re keen to help local causes in whatever way we can.

Over the next few weeks, we’ll be looking at business models we admire, want to be involved in or just think are worth sharing. We’ll also follow progress as these companies grow, taking our readers, lenders and investors on a virtual journey.

First out the bag is West Country Radio. Just launched on 13 August 2012, their business is a not-for-profit radio station aimed at promoting the south-west, increasing tourism and promoting businesses, resorts and events. It is a local business aimed at improving the lives of local people.

Its uniqueness comes in the form of how the radio station is broadcast. All presenters broadcast from home studios, transmitting their shows live and pre-recorded. This of course reduces costs enormously and allows money acquired by the station to be used on other things such as marketing and promotion.

What’s more, the station is completely run and produced by volunteers, minimising costs and providing fantastic volunteer opportunities, internships and training for people keen to get involved and learn about how a radio station works.

Opportunities like these are incredibly valuable for a local community and are applicable to all ages, from young people looking to gain experience for the future through to retired volunteers looking to give something back in their spare time.

Whilst relying on volunteers and therefore reducing overheads considerably, West Country Radio are also looking for funders, advertisers and sponsors to aid and increase capacity and grow the station’s listenership. The hyper-local nature of the station means that local businesses and events would benefit enormously from getting involved in the station whilst also helping out in the early stages of growth and helping to benefit the local area.

Local ventures such as West Country Radio are exactly what Funding Knight want to promote. Sometimes, we’ll help by providing business finance via our crowdlending model, and when that’s not viable we’ll help spread the word about local people committed to helping local people. We believe life is about more than just business, it’s about getting back to the roots of community and the warm fuzzy glow you can get as a result.

Lost in translation

dictionary and a magnifying glass

Financial products can be complex.  It can be hard to explain derivatives, say, or annuities.

Complexity is what most often gets blamed for the communications breakdown that exists between many financial providers and their customers.

But actually, do you buy that?

Do you buy that it’s hard to explain a savings account or loan or why it is good…. or not so good?

Should it be hard to explain why a business loan suits the businesses it was designed to help?

Not really.  The trouble is, that sometimes products don’t get designed with the customer in mind.  Instead of solving genuine customer problems, they’re created to solve internal issues – issues like profit, shareholder value or risk & capital ratios – issues that are not really that relevant to the average customer.  That’s why reconnecting with customers is so important.

If you design a business loan that lasts for strictly 1 year, demands that the borrower “mortgage the house” and jump through hoops to satisfy a computer than only sometimes “says yes”, then it can get quite tricky to explain the benefits in plain English.

Start trying to tell a business that their loan doesn’t look attractive because it’s not large enough or doesn’t tick a particular box and it gets downright difficult.

Yet that’s what many providers of business finance find themselves trying to do.

They justify the same old products day-in-day-out, irrespective of what their customers need and irrespective of how hard it becomes to “sell the benefits” of the small business loans they provide.  British businesses come in all shapes and sizes; they serve a huge variety of sectors and needs and use all sorts of innovative ways of working to do so.  Usually, we’re proud of diversity, so why should one size fit all when it comes to funding for business?

Maybe the reason that financial institutions get stuck talking to customers has nothing to do with product complexity.  Perhaps it has nothing to do with a failure to grasp social media, or the regulations that control what people can say.  Perhaps banks don’t need to get better at using plain English or go back to basics, perhaps they just need to realise that products need to be designed with the end users in mind.

Financial institutions have spent years creating products that solved internal issues.  The new breed of peer to business lenders are not institutions.  They are “enablers” that help customers find answers to the problems that matter most.  Instead of rigid products and tight lending criteria, customers will design their own loans with terms that suit them and their particular business needs.

The world is changing.  It’s no longer enough to have shiny ad campaigns, glossy leaflets or a celebrity endorsement.  Customers have woken up and are demanding something more genuine – it’s happening across all walks of life, be it politics, retail….. or financial services.

Perhaps products need to change to catch up.  Perhaps customers – on both sides of the lending/borrowing equation – need to start coming first?

FundingKnight certainly thinks so.  If you haven’t already, pop over to our website and sign up to stay in touch.

Reconnecting with customers

tangle of wires

Years ago, I worked in a real bank –a high street one with current accounts and mortgages… and lots of branches and overhead costs.

Back then, the credit crunch wasn’t even a twinkle in someone’s eye.  It was still fairly easy to wow people with talk of telephone banking, let alone ecommerce and online account access.

In many ways, times were good.  Yet, even then, banks knew that they had a fight on their hands to stay relevant to their customers.

Flavour of the day to achieve that in those days was an obsession with “behaving like a retailer” or “convenience banking” which basically meant opening up mini-branches inside coffee shops or supermarkets.

It was almost as if people believe that seeing a glimpse of your bank’s logo as you foraged for the prime spuds could trigger that long overdue action to sort out your pension or open an ISA.

The rise… and fall… of convenience banking was just one attempt at reconnecting with customers.  Like many others than came before or after it, it was not an unqualified success.

After all, customers still remain cut off and distant from the banks that look after their money.  That’s what really allowed “bank bashing” to dominate the headlines for so long.  Yes, newspapers sold copies on the back of headlines about huge bonuses and evil bankers but banks in themselves aren’t so bad.  In fact, they’re vital to a functioning economy.  We all benefit from a well run financial system.

But what allowed the headlines to run and run was the fact that banks have lost the battle for the hearts and minds of their customers and, it seems, largely given up.

The Occupy protests which followed the global economic crisis had legs due to popular appeal. Even if most people didn’t want to camp on the steps of St. Paul’s, most people could understand why some people did.  Most people could understand that the banks had been severed from the people they were meant to serve.

Re-connecting, re-establishing relevance.  That’s the real priority for UK financial services.  The way we lend and borrow money has to change.  It has to adapt to the real needs of real consumers – be they everyday savers like you and I or small owner managed businesses who need business finance to grow.

Change is needed.  Fast.  After all, ignore the voice of your customers for long enough and you tread a path to certain doom.  History has taught us that.  FundingKnight is determined to use peer to business lending to make change a reality.

Photo used under creative commons license

Trust me, I’m NOT a doctor

child dressed up as a surgeon

Who would you trust to give you a business loan, who would you trust with your savings and investments?  Trust is at the root of most business funding, especially peer to business (P2B) lending so what do you expect from financial brands, and what makes you trust them?  Read our thoughts about trust and then join our conversation to help shape the future of financial services.

A recent survey revealed that we typically trust financial advisors more than we do our accountants, or even our doctors.  Then I read an article in the Economist that suggested that our need for financial advice might actually be psychological rather than rooted in rational decision making at all.

Their argument, for what it’s worth, is that history shows that it’s impossible to accurately predict what will happen to financial markets.  It’s the same when political forecasters predict events – or the weather man tells us it will be sunny (or more likely, rain) tomorrow.  We know that they don’t have a crystal ball and – if we’re honest – we know that they’re often wrong, but our need for advice wins through, keeping us glued to our screens – and financial advisers.

Psychologists think it has something to do with the “avoidance of regret”.  We seek advice so that, if the worst happens and things do go wrong, we have someone else to share the blame with.

Of course, there is also a lot of genuine complexity in financial products that needs explaining, and that’s another – highly sensible – reason that people consult an advisor.

Christine Ennew is a professor of marketing at Nottingham University and has been working on trust in financial services for almost nine years.  Writing in FT advisor, she explained that trust in the financial sense is about giving someone the use of your money in the belief that they will return it to you, along with a reasonable payment for ‘using’ it.

Sounds straightforward, but how do you judge who and what to trust?  Financial products often can’t be judged until there is performance data to check; even then, performance of one product is caught up in the performance of the economy – the world, even – at large.

Then, there’s the issue of the changing way that money is lent and borrowed in this country.  Traditional ‘bank managers’, who typically earned very high levels of trust, have been replaced by computers, systems and the web – and online brands have to work harder to gain trust.

Why am I telling you all this.  Well, because “trust” is a concept we spend a lot of time thinking about at FundingKnight.  We’re trying to combine some of the lost benefits – and trust – of traditional banking whilst benefitting from the speed and efficiency of the internet.

We have some ideas about how to demonstrate that we’re worthy of your trust, but we’d also love to hear your thoughts.

How do you decide which financial organisations to trust?  What would help you decide to invest in a business?  Do you trust local businesses more than national ones because you ‘know the market’ or do you prefer to trust advice and invest “automatically” to benefit from that idea of the “avoidance of regret” that I mentioned at the start of this post.

We think it’s a really interesting topic and just one of the issues that is changing financial services in the UK.  FundingKnight wants peer to business lending to lead that change, and push for innovative solutions that benefit everyone and so we’d love to hear what you’ve got to say.

After all, this isn’t about you and us, it’s about all of us finding a new way to work that is better for everyone.

Leave us a comment in the box below, write a response on your own blog and link back to us here or connect with us on Twitter or Facebook.  We don’t mind how you do it, but please do join the conversation – it’s your future, too, help to shape it.

Photo used under creative commons license