8th December 2017

What funding options are available to SME’s and how to decide which is best for you?

by Huddle Capital

As the new year approaches many of us have exciting plans, and life changes for the year ahead, which may include opening their own business or expanding an existing one. The Gazette recently described small businesses as ‘the lifeblood of the economy, and the future of the UK.’ There has also been a vast increase in SMEs since the recession, ten years ago, following redundancies and bouts of unemployment. This forced many to seek alternative, more fulfilling ways of making a living. So it is no wonder that the trend continues and has become such an important part of the UK economy.

One of the first and most important questions to ask yourself as a business owner, is financially how can the dream become reality and be funded in the most efficient and affordable way for you. In the current financial climate, it has become more challenging than ever for most people to come up with the cash or savings that you need up front, both to start your business and also to fund your first few months before revenue really starts to take shape.

In-depth consideration is needed to decide exactly how this initial funding could be acquired and what the best course of action is to make your business a viable option for future earnings. So, what are the different funding options and which one would be best for you?

What is P2P lending?

Peer to peer lending allows the opening of new businesses to be funded by individual investors, usually through online ‘intermediator’ companies. Many people are familiar with the term – Crowdfunding, which is one example of peer to peer lending. At Huddle, we seek to match new business customers with suitable investment partnerships to maintain the development of new companies and offer investors the opportunity to grow their investment portfolio.

Is P2P lending becoming more mainstream?

In more recent times, it has been increasingly more difficult to finance the launch of an SME business through traditional lending avenues such as banking loans. The number of banks lending to SMEs has fallen from 60 to around a dozen, explains Propland. Banks do tend to have a long list of criteria so many SMEs will be rejected even if they are perfectly eligible for a loan. Significantly The British Business Bank performed a survey and found that in 2015/16 more than 10,000 new businesses were rejected for traditional business loans which meant billions of pounds worth of finance was missed out on. Banks also tend to have a cap of £50,000 for a business loan, however many P2P lending companies have much bigger loan options, offering a less restrictive approach when growing your business.

Since the financial crisis began a decade ago, funding your startup or business expansion using alternative finance have become much more attractive and accessible, due to the regulations and restrictions that traditional banks hold. These restrictions are much more challenging in many cases, and it has been said that, largely due to expense, the big traditional banks are just not interested in small projects anymore. The peer to peer lending arena has grown significantly over the last ten years, along with other alternative lending suppliers, and continues to do so due to strong demand for this type of service.

2017 Budget revel and the effect on SMEs

This Is Money explains that small to medium businesses were a strong focus in the this year’s Autumn Budget, explaining that SMEs are the backbone to the UK economy and the government should do as much as possible to help them in the run up to leaving the EU. With changes to VAT thresholds, business rate measurements, enterprise investment schemes, and R&D investment, now could be as good a time as any to think about when and how best to start your own new business.

How does P2P work compared to traditional means of lending?

P2P lending is often considered a riskier but sometimes more rewarding method of investing. P2P lending platforms such as Huddle Capital facilitate online communities that bring potential new businesses and SMEs together with a wealth of pre-reviewed investors who are ready to lend to them at competitive interest rates.

In the past, accessing an SME business loan via the traditional bank route was a long process with strict rules and regulations resulting in many small businesses being unsuccessful in doing so. Online P2P lending platforms allow investors to find and purchase pre-approved loans, which have already been underwritten and been processed through due diligence checks.

Growing industries in the UK

As an investor, it’s important to maintain a finger on the pulse of the most innovative and quickly growing industries in the UK. The technology industry continued to grow throughout 2017 with jobs in digital growing at double the rate of those in other industries, adding to the British digital economy continued success story. An increasing number of players within the digital industry are expanding outside of London, with movements such as the Northern Powerhouse fueling growth elsewhere in the country.

Other industries enjoying success in 2017 include construction and engineering, accounting and finance and advertising and marketing. Interestingly The Telegraph claimed that in May 2017, Scotland had the highest level of expansion for SME businesses. In the same article Business Secretary Greg Clark affirmed: “Championing high growth, innovative SMEs is crucial to the continued success of the UK economy. The government is committed to ensuring that companies of all sizes can access finance to grow, scale-up and create high-quality well-paid jobs across the country.”

P2P lenders will continue to be a large part of the overall success story for SMEs throughout the coming years, finding your perfect lending partner could be the first step on your journey to diversify your portfolio of investments and yield healthy returns.

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