The grip of the big banks is beginning to loosen as businesses in the UK explore alternative finance options to help them grow. Britain’s growing mid-cap companies, widely hailed as the driving force behind a healthy economy, are carefully watching the development of a more varied finance market – but access to finance still remains one of the biggest barriers facing UK businesses today.
The “Finance Challenge” panel at last week’s Investec Entrepreneurs’ Summit (with Ed Cottrell, head of growth and acquisition finance, Investec; Will King, King of Shaves; Andrew Mullinger, co-founder and CEO, Funding Circle, Dr Neil Murray, CEO, Redx Pharma and Stephen Welton, chief executive, Business Growth Fund) discussed the UK’s funding landscape and came to one conclusion: the finance conversation has to get louder.
While around 4,000 SMEs are experiencing at least ten per cent growth per annum, fewer than 50 smaller-scale private equity investments are made a year, said Stephen Welton. “Either the market is completely saturated and we are all cutting each other’s throats, or we are totally failing to get through to the very entrepreneurs that are out there,” Welton argued.
The fundamental driver behind new, disruptive finance options is to make funding less complicated, and much quicker. Too often, communication barriers between entrepreneurs and banks, coupled with a drawn-out process from sign-off to completion, are hampering growing businesses. The strength of disruptors such as Wonga and Funding Circle is that they’re fast and transparent.
“Anyone applying for a Funding Circle loan will get the decision within two working days,” said Andrew Mullinger, founder and CEO of Funding Circle. “It’s ‘yes’ or ‘no’. Entrepreneurs that come to us respect that, even if the answer is ‘no’.”
“Speed is essential; a long, slow, lingering ‘no’ is far worse than actually stopping the conversation,” added Stephen Welton.
It’s important to get goals and expectationsclear from the start of any funding process. Yet the questions entrepreneurs really want to know from the start – how much control will you have over my company? – are rarely addressed in the traditional funding process.
“Businesses of various sizes have different challenges to face, and there’s a distinction between lending freely and assessing risk correctly,” said Ed Cottrell, head of growth and acquisition finance at Investec. “I think what banks can do, should do, but aren’t doing very well is to be clear and quick. No matter what their risk appetite is, there is no reason for them not to be clear and quick as to where they can help.”
As businesses grow, from early-stage to established mid-sized status, so their financing needs evolve. Investors and business owners must be singing from the same hymn sheet.
“One of the big challenges for businesses is aligning the types of finance you can secure,” said Redx Pharma CEO Dr Neil Murray. RedxPharma has raised £9m since September 2010. “Venture capitalists’ interests are not overly aligned with the interests of early-stage angel investors…”
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