Few people would claim to love debt. But smart business owners know that borrowing is often necessary for their enterprises to reach their full potential. Thanks to fintech and alternative finance, today’s entrepreneurs have more choice, flexibility, and faster provision of funds than ever before.
What’s behind this phobia of owing money? Some business owners never borrow, others only when they actively plan to grow, while some prefer to use personal funds or trade credit when they need liquidity.
There’s some good news — of those entrepreneurs who are confident enough to take on debt, many are increasingly seeking innovative sources of funding, namely alternative finance. The ‘altfi’ industry was valued at £3.2 billion last year by innovation charity Nesta, now representing 12 per cent of all small business lending.
The technology boom has created a host of potential funding sources for smaller companies. These range from peer-to-peer loans and crowdfunding, to revamped invoice finance and fast-track, unsecured online loans. Companies that use these new funding providers discover not only revolutionary products, but also easier ways of repaying debt.
The new generation of lenders often allow customers to automate payments via Direct Debit, using the services of fintech pioneers such as GoCardless. In the past, banks typically only offered Direct Debit to SMEs on condition of a bond, plus they charged thousands of pounds for slow, complex processes.
Funding Circle was an early adopter of the GoCardless service. Funding Circle CEO Samir Desai said a major advantage was the simplicity of one person collecting money owed, rather than needing an entire department. Others from the new generation of fast-track business lenders, including Capital on Tap, Fleximize, and Boost Capital, also use GoCardless’s repayment services, which offers flexible payment plans on a daily, monthly, or ad hoc basis.
Alex Littner, managing director of short term lender Boost Capital, anticipates such innovations in repayment practices will both enhance the appeal of altfi, and could impact upon attitudes towards debt more broadly. He comments,
“Our customers can now make loan repayments using Direct Debit, which is easier, quicker, and more convenient for them and us. People need to borrow even at difficult times in the economic cycle. When bosses realise how fintech is developing to make their experience of debt and repayment as painless as possible, more should see that properly delivered and managed borrowing can be the making of a business’s success.”
Clive Lewis, head of enterprise at the Institute of Chartered Accountants in England and Wales (ICAEW), sees other potential benefits for small firms. He comments: “What GoCardless is offering should mean SMEs’ accounting is under more control, plus the aged debtor analysis – how much customers owe the business analysed by the length of time outstanding – is easier to keep up-to-date.”
The ability to receive and repay funds quickly was why Joe Moroney turned to Boost Capital to fund his children’s publishing and animation business, Fourth Wall. The banks were unable to provide fast capital to buy extra stock to fulfil orders at the company’s busiest time of the year. A commercial finance broker introduced Moroney to Boost Capital, and his firm, which is based in Bromborough, Cheshire, was soon able to meet customer demand.
“It was a swift process, and there was great customer service along the way. We’re growing at a fast pace, so working with Boost Capital meant we could immediately fund projects that would otherwise not have gone ahead. Repaying the loan quickly and easily via Direct Debit was also a bonus.”
Clive Lewis understands some businesses are uncertain about borrowing in the current climate, but points out the enormous potential for those that invest now using the range of borrowing on offer, thanks to historically low interest rates and the depreciation of the pound.
Debt may not be something to love, but, if handled properly it should not be a source of fear. It can bring a business great rewards. In the altfi age, borrowing looks different to anything most SMEs have experienced before – flexible, easy to access, and simple to repay
By Samantha North, GoCardless