Frustration is a word heard all too frequently in the process of financing small businesses. Survey after survey demonstrates that small businesses are frustrated by slow-moving traditional lenders. And alternative finance providers and facilitators, such as Money&Co., are upset by our seeming inability to get the message across that there is an alternative.
However, we believe the dawn of awareness is breaking. Witness this piece in the Daily Mail, which explains why crowdfunding might suit certain small businesses in pursuit of funds to grow.
"The idea is that, by cutting out the banks, individuals who lend to you get a better rate of return. At the same time, your business may be able to borrow at a cheaper rate than the banks offer - if you have a good credit score.
These loans are collated so that lenders' money is put into a bucket of different companies or individuals put together by the platform to even out their risk profile.
"The risks of this type of financing are borne mainly by the lenders as their money isn't protected by the FSCS. However, SMEs who borrow through peer to peer lending need to treat it the same as they would a bank loan - you won't necessarily be accepted, and if you don't pay it back on time your credit score may be affected and you may be chased by a debt collection agency.
"Meanwhile, crowdfunding lets individuals financially back your product or service. On some sites the aim of this is to help charitable or socially conscious projects get off the ground, and the backers get nothing back other than the satisfaction of seeing it come to life.
"But usually, businesses offer something in return, like equity (shares) in the business, or debt (bonds or mini-bonds).
"Once on the crowdfunding platform, you have a set time-frame to attract the funding you need. In most cases you will not receive any of the investment if you fall short of the target, but you are usually allowed to raise more than your target. This means it's important not to set a target higher than you can realistically raise.
"Crowdfunding can be a useful marketing exercise in itself, helping to raise the profile of your business while (hopefully) attracting your desired level of funding."
See detail, including a short video, of Money&Co.'s borrowing process. Our typical rates are higher than we anticipated at launch in 2014, when this video was made, with lenders achieving a net average rate of 8.1 per cent.