Business bonds have typically been a way for larger organisations to raise finance, but there are flexible options out there for smaller companies too.
We have explored lots of different kinds of alternative finance in this series so far, including bank loans, crowdfunding, asset finance and many others.
However, there are many funding products out there that many small business owners might not even has considered.
For example, business bonds have traditionally been the preserve of large corporate companies and governments – but no more.
What are business bonds?
Bonds are essentially IOUs. A business in search of finance issues bonds, and lenders buy them – there will be a set maturity date on which the business will repay the full amount, and in the meantime the lender earns interest on the investment for their troubles.
The UK Bond Network has created a way to make bonds accessible for smaller businesses and the offering provides a great deal of flexibility that can be useful for fast-growth businesses. We caught up with Chris Maule, CEO of UK Bond Network, to find out how it works in practice.
Could you please give us an introduction to UKBN?
Chris Maule: “I founded UK Bond Network in 2013 after over seven years working in corporate broking. While managing the structuring of debt for businesses and the distribution of investment opportunities to investors offline, I saw an opportunity to create greater efficiency and transparency by bringing the process online.
“UK Bond Network works closely with management teams to firstly gain a detailed understanding of their business and secondly to structure finance on terms to suit their specific business goals. Then, investors – primarily sophisticated investors and high net worth individuals – are given access to the offer documents and are invited to lend to the business via our platform.”
What is the process from A to B of a business applying for investment and being handed the money?
CM: “From introduction to drawdown will typically take between four and six weeks. We give businesses a yes or no answer within one business day and, once we’ve engaged with a business to raise finance for them, we then undertake between two and three weeks of due diligence and structuring before we place the opportunity to invest on our platform for up to three weeks.
“The bespoke nature of the finance we offer and the relatively large size of the funding (£500,000+) means that we take ample time to complete in-depth analysis on the business.”
What are you looking for in a business, what would convince you to offer them finance?
CM: “Our lending criteria describe broadly whether a business might be suitable to raise finance through UK Bond Network, but intrinsic to our decision to approve them would be the strength of their management team and corporate governance.”
What tips can you give to businesses pitching? What makes a good pitch?
CM: “When seeking finance, the devil is in the detail. A good pitch contains concise clarity about your business model, competitive landscape, financial track record, projected earnings and management team.
“That final point, for me, is the salient one: ensuring that your ducks are in a row is vital, but placing emphasis on presenting the strength, capability and knowledge of your management team to investors will leave a lasting impression.”
What are the pitfalls to watch out for, for small businesses seeking finance?
CM: “Pitfalls and unexpected obstacles are part and parcel of running a small business, but preparation and contingency planning can mitigate these risks considerably.
“Firstly, take stock of your company’s performance and plan the timing of your next injection of capital.
“Secondly, ensure that you are adequately prepared to seek and ultimately repay that capital, define the type of finance that you need and speak to a range of investors or providers. Then, carefully select the most suitable outfit to move forward with.”