The co-founder of MarketInvoice on how peer-to-business lenders can help finance growth
Every day, we hear from small companies that have great ideas, products and customers, but who still struggle to raise money from the banks in order to make their business work. New finance providers, such as ourselves, are trying to redress this situation. MarketInvoice matches lenders with borrowers in newer, more innovative and unexpected ways.
One particular area in which non-traditional lenders can help is export finance. SMEs often cannot afford to fulfil orders from foreign businesses because they don’t have the liquid cash. Indeed, one in four small companies points to finance as their main constraint in accessing foreign markets.
When a small British business, exporting engines to a huge Brazilian company, for example, cannot get an advance on those sales purely because they are selling to a foreign company, the entire economy suffers. A great chance to leverage British exports – and so a huge opportunity for growth – goes begging because the banks cannot or will not take the chance on a small company.
Alternative finance can solve specific problems like this. By directly connecting savers with lenders through online platforms, it allows individual investors (who have a greater appetite for risk than at any point over the last half-decade) to get the returns they want.
The small businesses benefit because those same investors, not caught in the quicksand of bureaucracy and looking for decent rates, can lend money to businesses that need, deserve and can afford it.
So for example, through MarketInvoice, an investor with the willingness to take the risk could be found to buy the invoice for the engines in the Brazilian example.
The government has, to its credit, seen the potential of alternative finance and has diverted money into the sector. Anything the government can do to help businesses is a good thing for us.
The Funding for Lending scheme, while it may not have been as effective as many would have hoped, has still gone some way to propping up small business lending.
But the private sector solution – alternative finance providers – is bridging the funding gap for small companies on a daily basis. Businesses such as MarketInvoice and other peer-to-business lenders have now proven themselves time and time again in the harsh world of finance. Together, we have provided hundreds of millions of pounds’ worth of funding to businesses. We have conclusively shown that individuals and businesses want and need a new method by which they obtain the finance they require to provide their products and services.
For Britain to lose out on what looks to be a central pillar of finance in the coming decades would be a major danger to its hopes of recovery.
Us alternative finance providers are all very young firms. Without the branch networks of the banks, many of Britain’s SMEs have still been left unaware that they have another option.
For the British economy to see real growth over the next few years, SMEs will have to provide the bulk of it. There are thousands of companies out there that can use alternative finance to help manage their cash flow. With the banks lending less and increasing their rates the opportunity is huge.
As the only practical funding solution that has been found to drive this country out of the economic doldrums, alternative finance clearly should be central to the plans of both small businesses and government.