Member Article

In the past, if you wanted to borrow money you would go to your bank manager, or if your bank couldn’t help you, you approached business angels or institutional investors.

Business owners now face a confusing and daunting range of funding options. In the digital age, the options include an ever increasing number of online platforms which flourished following the banking crisis and which seem to offer above market returns in our low interest rate economy.

Are these online platforms an appropriate alternative now that the banks are lending again and equity institutions are primed with cash and keen to invest in development capital opportunities? There is no disputing that they provide a simple route to market but they have their risks and limitations. The basics remain – you still need to prepare a compelling business case, quantifying what funding you need, why you need it and what return the lender or investor will get. Raising finance online can provide a profile boost and attract potential customers. It is no surprise that some of the most high profile advocates are consumer businesses.

That said, a pitch exposing your business / concept brings serious commercial risk either in failure to secure your target or in exposing your idea to potential competitors or imitators. Even if you succeed in raising finance, you may be left with a long list of lenders or investors that will need managing and may have different agendas or objectives rather than working with a group of more predictable institutional lenders / investors.

These concerns come even before one considers some of the regulatory and reputational challenges for a borrower. Regulation remains an evolving story in this market and whilst there have been some high profile failures, the fall out remains to be felt.

Peer to peer lending and crowd funding solutions are a logical evolution to raise debt or equity funding and seem to be here to stay. That said, they remain in their infancy and not without risk. With debt and equity markets as buoyant as we have seen for several years, the business owner is left with ever more options, with varying risk profiles, to fund growth.