The two-day Business Funding Show in London’s Old Billingsgate attracts SMEs and funding providers alike, and is the best place to explore current and upcoming trends in the fast-paced world of alternative finance. SME brings you a live blog of the events as they unfold…
10.30: British Business Bank – funding solutions and trends
The British Business Bank (BBB) was set up by the government to help small businesses get to market. Senior economist Matt Adey explained the BBB’s objectives and the trends it has witnessed in alternative finance in recent years.
- Increase supply of finance
- Create a more diverse market
- Provide better information
- Manage taxpayer’s resources effectively
- Working with over 80 partners
- Over 44,000 businesses are currently supported by BBB programmes
- Supporting £2.5bn of finance to SMEs
The market for SME finance
Lending for SMEs is improving. Traditional forms of lending are on the rise, but there is a debate about how much businesses should rely on banks following the recession. Despite this growth however, funding through banks still has not picked up to pre-crisis levels.
Specialist finance providers are picking up too – there has been significant growth in recent years. Total volumes of asset finance to SMEs are high, and in fact have been built back up to pre-crisis levels.
In addition, there has been a rapid rise in equity and P2P finance. This is especially true for seed-stage start-ups and large deals, but there is a gap in the market that the BBB hopes to address. In the coming years it is hoped that more stable start-ups, those just past the seed-stage, will look to use it.
Interestingly, Adey says that despite exponential growth in the area of P2P and equity finance, it still accounts for a small percentage of the overall lending space. To investigate this further, the BBB conducted a few surveys with SME decision makers.
When asked what sorts of finance they were aware of, there was a pretty mixed bag of results. There has been progress in raising awareness of various types of alternative finance since 2012, but some types of finance such as trade finance, P2P and mezzanine finance still ranked pretty low.
When asked which was the last type of finance they sought for their business, most respondents mentioned overdraft or credit card finance but only 1% mentioned P2P, or equity finance. This demonstrates that, while awareness continues to climb, this alone does not translate into usage. Adey remarked that while these types of finance certainly should not be relied on as often as credit card finance, there is clearly some wiggle room for SMEs to make the most of this space.
Lastly, the SMEs were questioned on whether they shop around before agreeing to a funding deal. In 2012 only a tiny minority of people asked more than one finance provider what services were available to them – their current bank. This has improved and people are more likely to shop around than before, but most SMEs still tend to ask one provider rather than exploring all their options.
Small Business Finance Markets report out today- covered in the FT page 4 pic.twitter.com/MAoAEmqKAI— SME_Reporter (@LetitiaBooty) February 2, 2016
Around 56% of SMEs are aiming to grow in 2016. Many of these will not require external finance to make this dream a reality, but for those that do there is still a lot more work to be done to help them access alternative finance.
1.30: Accelerating the growth of your business through space and science
Representatives from the Science and Technology Facilities Council, a government agency that reports to the Department for Business Innovation and Skills, spoke at the Business Funding Show about the programmes they have on offer to small businesses.
The STFC is a multi-disciplinary organisation that prides itself on three pillars:
- World class research
- World class innovation
- World class skills
The organisation works to support businesses in the UK with a variety of programmes, including its incubation programmes, which allow businesses to access facilities and expertise on its specialist campuses around the UK. For example, an SME with an idea for a new technology can produce a prototype on campus and develop it into a saleable product with the help from on-site staff and scientists.
The STFC can signpost businesses to other funders and provide route to market support. It monitors the success of companies based on campus in the programmes they run and as a rule, after three years of being on campus, they have more than 90% chance of survival compared to the UK average of 50-60%.
As well as this range of benefits, the STFC works in partnership with CERN and collaborates with businesses in the space travel supply chain that believe their technology can be re-purposed for an alternative use.
2.00pm: Invoice financing
Bibby Financial Services corporate director Kevin Craven offered a breakdown of the complex world of invoice financing at the Business Funding Show…
What is invoice finance?
Invoice discounting allows a business to draw money against its sales invoices before the customer has actually paid. There are a few different variants of what is essentially the same or a very similar form of alternative finance, including: factoring, export factoring and receivables finance
In addition there is asset based lending (ABL), whereby stock, machinery, property can be used to free up cash for a business. ABL is useful for rapid growth when higher amounts of funding are needed.
Scale of the industry
Statistics on invoice financing:
- One trade body – the asset based finance association
- 49 members
- 44,000 businesses currently funded
- Around £300bn of sales financed in 2015
The industry has grown significantly over the past 20 years. There was a dip just after recession, but overall there has been steady growth. This has been partly due to larger businesses using these financing solutions, and this recognition is a real feature of the industry in the past few years.
How does it compare to Fintech?
At its heart Fintech is about using new technology
Fintech and Internet based funding options such as crowdfunding, peer to peer lending and online exchanges, are now widely available. The online invoice trading platforms that have been established over the past five to six years are the closest to invoice financing options, but they can be used on an invoice by invoice basis, with cash freed up in a couple of days. This makes them more suitable for short-term lending.
The fact that these newer services are more suited to short-term lending means that in reality they occupy very different places in the market and work for different needs. These services are not really a threat to traditional invoice discounting providers, and should be welcomed as an additional funding tool to small businesses.
3.00pm: How to get funding from an angel investor
Bill Morrow from Angels Den, which specialises in matching up the angels to the entrepreneurs, gives his top tips for getting funding from an angel investor:
The money is the easy bit
- Most business owners want the wrong thing – they all want the money, but that’s not all you need. Money is the easy bit you can get that from a crowdfunder. Mentoring is the number one thing. Business contacts come second, and business experience comes third.
- Understanding shareholder agreements and nominees etc. is boring but essential.
- You need to know what an angel is interested in – usually the first thing they are looking for is something to do, they have made their money already. Angels also often like to be able to give something back. In terms of motivation, making money comes in third.
- Remember that you are allowed to ask them questions.
- You need to be able to look an angel in the eye and explain what your business does. Have a strong business plan and confidence in your company.
- Sell your business to the funders, not your product.
- Understand what the numbers are really about. Do not value your business at an insane level, high valuations put a lot of pressure on you.
- Social skills are important – if an angel is looking for something do and wants to give something back, you need to be likeable and easy to get on with. A lot of angels make up their mind as you are walking towards them.