Find the signal in the noise

Since the 2008 finan­cial cri­sis, the UK busi­ness lend­ing land­scape has changed con­sid­er­ably. Bank lend­ing to small and medi­um-sized busi­ness­es (SMEs) has reduced dra­mat­i­cal­ly and over­drafts for SMEs have been with­drawn at a rate of £5 mil­lion a day since 2011. This has starved busi­ness­es of the vital finance they need to grow, dam­ag­ing the econ­o­my in the process.

Iron­i­cal­ly, there is liq­uid­i­ty in the mar­ket to fund lend­ing; it has just been unable to find a route to bor­row­ers. This liq­uid­i­ty, com­bined with the lend­ing drought, has fuelled the growth of the alter­na­tive finance (Alt­Fi) sec­tor.

Alt­Fi lenders offer a dif­fer­ent range of finance prod­ucts, fre­quent­ly using tech­nol­o­gy and data to make lend­ing deci­sions, typ­i­cal­ly via online plat­forms, with a seam­less cus­tomer expe­ri­ence and in a frac­tion of the time it takes tra­di­tion­al lenders to arrive at a deci­sion.

Alt­Fi has seen expo­nen­tial growth and is pro­ject­ed to hit £12.3 bil­lion in 2020 – ten times high­er than in 2014 – and the sec­tor has clear UK gov­ern­ment sup­port via the British Busi­ness Bank, which has so far invest­ed £60 mil­lion in the Alt­Fi sec­tor to facil­i­tate lend­ing to SMEs.

Inno­v­a­tive solu­tions, such as Verus360’s online revolv­ing finance, give busi­ness­es much greater flex­i­bil­i­ty and address a range of fund­ing needs with cost-effec­tive finance

You may have heard about Alt­Fi and maybe even con­sid­ered tak­ing advan­tage of the ben­e­fits it can pro­vide. How­ev­er, this is a noisy sec­tor, with hun­dreds of providers and prod­ucts each promis­ing a unique propo­si­tion. Essen­tial­ly, most Alt­Fi prod­ucts fall into three broad cat­e­gories:

• Peer-to-peer (P2P) busi­ness lend­ing – an online mar­ket­place where investors are matched with bor­row­ers and the provider mere­ly acts as an inter­me­di­ary
• Crowd­fund­ing – where a large num­ber of investors invest in a com­pa­ny, typ­i­cal­ly tak­ing a share of the busi­ness they lend to
• Invoice trad­ing – where you sell your invoice to a lender at a dis­count to accel­er­ate your cash flow.

So what are the key con­sid­er­a­tions when con­tem­plat­ing Alt­Fi solu­tions?

Do you real­ly need to bor­row?

Know­ing why you need to bor­row may sound obvi­ous; you may be in growth mode and have to buy more stock, hire more staff or fund new con­tracts. How­ev­er, it may also be due to issues with work­ing cap­i­tal because your cus­tomers aren’t pay­ing you quick­ly enough. In that case, the first ques­tion to ask is whether you can get these pay­ments back on track, rather than bor­row­ing mon­ey.

Match your finance to your needs

Make sure that you get the right finance for your busi­ness. Cer­tain types of finance align well to cer­tain types of needs; for exam­ple, lease finance to fund vehi­cles or machin­ery. But tak­ing out a long-dura­tion, fixed-term loan may not be suit­able to meet short-term bor­row­ing and vice ver­sa. Inno­v­a­tive solu­tions, such as Verus360’s online revolv­ing finance, give busi­ness­es much greater flex­i­bil­i­ty and address a range of fund­ing needs with cost-effec­tive finance.

How much does your bor­row­ing real­ly cost?

Bor­row­ing mon­ey is one of the most crit­i­cal busi­ness deci­sions you will make, so it’s vital that you under­stand the true costs involved. Our research has shown that 40 per cent of UK busi­ness­es are unsure what they’re pay­ing for their finance. The head­line rate can often seem attrac­tive, but there may be addi­tion­al costs, such as penal­ties if you go over your agreed lim­it, or admin­is­tra­tion fees, which make the total cost of bor­row­ing far high­er. Verus360 has decid­ed to take a stand against these hid­den costs by offer­ing flex­i­ble busi­ness fund­ing, and charg­ing inter­est only on the funds busi­ness­es use and for the time they use them.

Make your finance facil­i­ty work for you

Ask how your loan will oper­ate, and work out how much time it will take to apply for and man­age the mon­ey. Lend­ing plat­forms, such as Verus360’s, con­nect secure­ly to a business’s accounts soft­ware to offer a cred­it facil­i­ty that’s sim­i­lar to a secured over­draft. A busi­ness can apply online, get a deci­sion with­in the hour, and access funds with­in days, mak­ing the offer­ing more respon­sive to cus­tomers and dri­ving greater choice.

What is at risk if you bor­row?

Some lenders offer unse­cured loans, oth­ers take secu­ri­ty against the busi­ness via an indus­try-stan­dard deben­ture, while oth­ers take it via a per­son­al guar­an­tee from indi­vid­ual direc­tors. You need to have peace of mind about the secu­ri­ty that you pro­vide; Verus360 doesn’t ask for per­son­al guar­an­tees.

Make your data work hard­er for you

Tech­nol­o­gy and data are rev­o­lu­tion­is­ing the cus­tomer expe­ri­ence. Online accounts analy­sis enables Alt­Fi firms to offer busi­ness­es fast access to finance as well as play­ing back valu­able data on busi­ness per­for­mance. Verus360’s plat­form pro­vides a per­son­alised dash­board for its cus­tomers with valu­able busi­ness infor­ma­tion. Busi­ness­es that can cap­i­talise on the com­pet­i­tive advan­tage this data pro­vides will be able to grow faster.

And the future?

SMEs are the lifeblood of the UK econ­o­my and deserve bet­ter. The pos­i­tive reac­tion to Verus360’s pay-as-you-use finance and trans­par­ent pric­ing is clear evi­dence that busi­ness­es are look­ing for fair­er fund­ing. How quick­ly “fair” becomes the norm for busi­ness bor­row­ers remains to be seen.

Tony Mor­gan, chief exec­u­tive Verus360

www.verus360.com