| Informed Funding |
Message from Chris Dines, CEO of Informed Funding
In last month’s newsletter I spoke about our aim to have 500+ funder microsites on the platform by the end of September; well I am pleased to say we are well on track to achieve this with already 180 information sites now live. Be sure to explore the Informed Funding website by utilising our ‘What’s your funding challenge?’ tool that will direct you to the types of finance and funders that are best suited for your business based on why you want or need to raise funds.
Whilst our platform provides lots of guidance and information on the range of funding options and the funders available, we are also busy planning our next Funding Fair to be held on the 24th September at the Metal Box on Southbank. The aim of the fair is to provide you, business owners, PRACTICAL education and information on business finance.
You will have the opportunity to meet with funders directly to discuss your circumstances, meet with business advisors in 1:1 workshops who can help advise on Growth Strategy, Investment Readiness and Shaping Your Business For Sale and also attend informative seminars and panel discussions. Just some of the sessions we have planned include: ‘Crowd Funding Readiness’ and ‘P2P Readiness’ where we will case study some of the success stories, talk directly to leading Crowd Funding and Peer-to-Peer specialists and investors. In these sessions we will also take participants through our diagnostic tool to test their potential for funding. We will also host a seminar focused on IP – How to really make money from your ideas where you will hear from businesses telling their success stories and have the opportunity to talk directly to experts from the Intellectual Property Office about your own position.
Needless to say we will also have some key note speakers, more detail to follow on this in the coming weeks!
Make sure you don’t miss out and BOOK YOUR PLACE. I look forward to seeing you there.
Regards
Chris
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Following the success of our Funding Fair Launch at the end of February, we will be hosting another Funding Fair on the 24th September at the Metal Box on Southbank. We once again plan to have a full afternoon and evening of informative sessions. This time we will hone in on “What works in new finance for SMEs”
The sessions will be clearly focused on how SMEs can start to think differently about the way they might finance themselves. We will have a deep dive into P2P lending and also Crowd Equity where we will hear from some leading experts and funding providers, as well as hearing from business owners that have raised funds through these channels.
We will also be hosting a panel discussion on the future impact of technology on SME finance and how SMEs can think differently about the nature of financial transactions.
There will also be an opportunity to speak directly to funders and advisors at their trade stands and also attend FREE business advice clinics with top professionals from Buzzacott and Advantage Business Partnership (ABP). In addition to these FREE business advice clinics, this September, we will also be running an Informed Funding Drop in Centre where we hope to answer any questions on funding.
Needless to say, we are also securing some high profile key note speakers. More to follow on this in the coming months.
Our Funding Fair in February was a great success with over 350 attendees throughout the afternoon and evening, 8 informative and engaging presentations delivered by 24 presenters, 17 trade stands built and 24 business clinics attended (and not to forget, 270 mini cakes consumed!) We also recieved extremely positive feedback with 89% of attendees rating it as excellent or very good.
Just some of the sessions included hearing from leading Alternative Funders such as Angels Den and Ratesetter who explored how alternative funding platforms deliver funding solutions to businesses based upon their stage of growth and development; Alpesh Paleja, Head of Economic Analysis at CBI (Confederation of British Industry) spoke on the economic outlook impact on businesses; we also witnessed a healthy debate from our panel of Directors from leading banks including NatWest, Barclays and “Challenger” Metro Bank.
This September we are aiming to have 500 attendees, more trade stands, more clinics and equally as informative sessions, To book your place at the Funding Fair and to express an interest in the drop in advice clinics, .
If you are interested in sponsoring the event, or booking trade stand space, please email [email protected].
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When your business is in its early stages of growth, one of the most valuable assets you can possess is experience to navigate the tough times that all business owners go through at the beginning. However, for many business owners, experience is hard to come by when it is your first attempt at starting a business.
When you are looking for finance, and if you feel like some added experience in the management of your business could help you, then you should consider looking at Angel Networks as a source of finance for your business.
Angel Investors are individuals, and often successful business owners themselves, who look to invest in growing businesses in exchange for private equity in the business, and often a say in the running of the business itself. While it can be hard to relinquish some of your own business to an outsider, the experience an Angel Investor can bring to the table is invaluable.
Angel Networks are groups of these Angel Investors, and using an Angel Network is one of the most common ways start-up and early development companies raise finance, as the amount that Angel Investors offer is unlikely to be more than £100,000 in a single transaction, while a network can offer up to £1m or more, offering a great deal of variety as well as the experience that these investors offer.
As is the case whenever you apply for finance for your business, your business plan will be heavily scrutinised, and bear in mind that the people who will be looking at your business plan in the Angel Network have business experience themselves.
As they are looking to personally invest in your business, be as transparent as possible. It is better to show that there is room for improvement that the investor could see as potential areas to work on, rather than to hide elements of your business and have the investor find out at a later date.
The process of applying for finance from an Angel Network can take a number of months, taking to account the financial and legal analysis that is undertaken. Bear in mind that training is sometimes offered to prepare you for your pitch to the investors, which adds to the time.
As a result, Angel Networks are not necessarily a quick source of finance, but if successful, the long-term benefits to your business of receiving finance from Angel Networks can be large if you are looking for some added experience to your business.
Here at Informed Funding, we have a variety of Angel Networks as part of our own network that we can connect you with. Simply register and follow our 5 simple steps and see if Angel Networks are the right finance option for your business.
Need to know:
- Under the regulation that governs angel investing, angels need to be either Self-Certified Sophisticated Investors or Self-Certified High Net Worth Individuals, as set out in the Annexe to the Financial Services and Markets Act, 2000.
- Angel investors usually want to take advantage of tax incentives such as the Enterprise Investment Scheme and Seed Enterprise Investment Scheme and you should therefore determine whether your business is eligible for funding under these schemes before you approach potential angel investors. The regulations are available from the HMRC website.
- It is a good idea to be frank from the outset with angel investors about any issues that make be uncovered during due diligence. Finding out later on about problems that weren’t mentioned at the outset can destroy trust and sour relationships.
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Buzzacott's Summer 2015 Budget Report
- Buzzacott, a key sponsor of Informed Funding, have put together a comprehensive guide to the 2015 Summer Budget that answers how the 2015 Summer Budget will affect you.
Bridging the gap: Short term finance alternatives
- In these cash squeezed times, bridge loans are perfect to enable individuals and businesses and borrow on a short term basis, writes Jo Chapman, Marketing Director at Informed Funding.
Seminar Blog: Getting a deal (or a better deal!) from a bank
- Informed Funding welcomed four representatives from banks who answered questions about SMEs applying for finance. This blog summarises the seminar.
Introducing: Informed Funding’s New Website Homepage!
- We feel that easy access to information is vital for growing businesses that are deciding how best to proceed when it comes to financing their business. For this reason, we have re-designed our homepage to make it easier than ever to find finance using out platform.
Interview with Roger Fenwick, NatWest's Regional Director in
- When it comes to lending to small businesses, banks don’t have the greatest of reputations. Ahead of the InformedFunding seminar on getting a better deal from your bank, we talked to Roger Fenwick, NatWest's Regional Director in .
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How big is the potential market for P2P lending to businesses? Today, Funding Circle and ThinCats, the two largest business lending platforms, have £475.67m and £78m respectively of loans outstanding. The major banks’ stock of lending to smaller businesses stood at £33.8bn at the end of Q1 this year, according to the British Bankers’ Association stats. That means P2P platforms now account for a little over 1.6% of the outstanding stock of lending to smaller businesses (although the P2P figures I’ve given include a small amount of property lending that would figure elsewhere in the bank stats but let’s leave that small quibble aside for now).
Working out how big the P2P share could get is at best an inexact science but it’s obvious that it is going to increase, given that the banks’ stock of lending to small businesses continues to fall as they repay more than they borrow, while the P2P lenders continue to expand their books rapidly, albeit from a far lower base.
While looking for something else, I recently came across the info that the SME Finance Monitor gathers on this area as part of its waves of survey work that question several thousand small businesses each quarter. According to the Monitor, “awareness of crowdfunding” among businesses that either use or would consider using external finance has been growing steadily, from around 25% in 2013, to 32% in the second half of 2014 and on up to 38% in the first quarter this year. So awareness among potential customers is clearly moving fairly quickly in the right direction.
Taking the results for the 13,463 businesses surveyed in the 12 months to March 2015, awareness averaged out across the year at 31%, leaving 69% of the market still unaware that P2P exists as an alternative source of funding – plenty of room for growth there.
But among the 31% who were aware, two-thirds said they wouldn’t consider using this source of funding for their business. About 10% would consider it but aren’t using it, and the remainder either use crowdfunding already or have applied – roughly in line with the figures for market shares at the top of the article.
You could simply extrapolate those figures in a straight line (always a dangerous activity) and conclude that about a third of those businesses that use external debt funding are potential customers for P2P lending platforms, and that at least 5% of these businesses might actually have loans outstanding from this source at any one time. Extrapolating like this is always risky, as I say, but you have to start somewhere.
The interesting questions revolve around what is holding back the two-thirds of businesses that are aware of P2P lending but say they wouldn’t use it. I’d be very interested to hear views on this in the comments box – might it be the need to publish their financial data, for example? Perhaps questions on this are something the SME Finance Monitor should add to its survey work? Perhaps the P2P Finance Association should be lobbying for a seat on the steering committee that oversees the SME Finance Monitor?
Also, I can’t help wondering whether their choice of terms is confusing the picture. Most people nowadays associate “crowdfunding” with equity investment and P2P with lending. Given the SME Finance Monitor is all about debt finance, I’m assuming that survey respondents understand that they’re being asked about P2P lending rather than equity investment. That may not be a safe assumption and confusion on that score would definitely invalidate the figures. The SME Finance Monitor could be a really useful tool for mapping the reach of P2P lending into the SME market – but not if there’s any confusion among the survey respondents over what they’re being asked about.
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There is a vast array of different types of funding options for businesses. In this newsletter we provide an overview on a further three funding methods firstly, with a deeper look into Equity Crowd Funding.
Factoring and Invoice Discounting both enable businesses to receive cash advances based on the value of their outstanding invoices to business customers. Funds are usually advanced for periods of 30-90 days and providers will normally insist on financing all the invoices a company issues, meaning that the quantity of borrowing available will tend to increase as the borrower's revenues grow. In the case of Factoring, the finance provider will undertake credit control and collections on behalf of the borrower, while in Invoice Discounting, these functions remain with the borrower.
What are invoice discounting and factoring?
These are two related forms of short-term funding under which companies that sell to other businesses – rather than individual consumers – can raise finance based on the value of their outstanding invoices, or “accounts receivable”. The main difference between the two is that in factoring the finance provider will take over responsibility for credit control and collections from the borrower, while with invoice discounting the borrower remains responsible for these functions and therefore retains a direct credit relationship with its customers.
Who decides which one I can use?
This usually depends on how large and well established your company is. In general, invoice discounting will be offered only to companies with annual turnover of more than £500,000 that can demonstrate they have sound financial systems and procedures and an established credit control function. Smaller companies with sales of £50,000-£500,000 a year will be offered a factoring facility.
How much can I borrow and for how long?
Funding based on accounts receivable, whether factoring or invoice discounting, is usually an ongoing facility that runs for periods of 12 months and upwards. Once a sale is invoiced, funds are advanced against that sale for periods of between 30 and 90 days, in line with the typical payment terms agreed with business customers. The size of facility the borrower can access will depend on the size of its receivables book and what proportion of the book is deemed as “eligible assets” by the funder. Invoice discounting facilities usually enable the borrower to receive 85%-90% of the value of outstanding invoices, while factoring clients usually receive 80%-85%. The borrower receives the remaining portion when the customer settles its bill, but must allow for charges owing to the funder that provided the advance.
What security do I need to provide?
Factoring and invoice discounting are secured via a floating charge placed on the whole sales ledger by the funder. In some cases, borrowers may also be required to provide a personal guarantee.
What does it cost and what fees are payable?
Borrowers will be charged a one-off arrangement fee when they set up a factoring or invoice discounting facility. There will then be a monthly fee, either a fixed amount or a percentage of turnover (around 0.5% for invoice discounting, 0.75%-2.5% for factoring). Finally, there will be a finance charge based on the sum advanced and calculated on a daily basis (typically 1.5%-3% above the base rate in both cases).
What happens if my customer doesn’t pay the invoice?
Unless you have taken out credit insurance, which may be offered by your invoice discounter or factoring house, your company will remain liable for repaying any sums owing to your lender in the event of non-payment by a customer.
Need to know:
- Invoice discounting and factoring facilities have the advantage that they grow with the company’s revenues so that the amount of funding will tend to increase in line with sales. Equally, if your sales decline so will the amount of funding available to you.
- Since funding is linked to sales rather than the state of the balance sheet, invoice discounting and factoring can be accessible for loss-making businesses.
- Funders may charge a range of fees over and above the basic charges set out above. These can include fees to carry out an audit of a potential borrower’s accounts before granting a facility and “refactoring fees” if an invoice becomes overdue.
- Funders may also impose limits on how much they will advance against sales to particular customers, especially where that customer accounts for a large percentage of your total turnover.
- Businesses that have long-term contracts, staged payments or contracts with retention clauses built in are unlikely to be suitable for these forms of funding.
- You should pay attention to the notice period in an invoice discounting or factoring facility – usually it will be three months but it can be up to year.
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Early Stage & Development Loans
Companies that are relatively young but are trading profitably and do not have sufficient assets to secure a conventional loan may be able to raise development funding from a range of potential lenders. As these loans may be unsecured, they will tend to command higher rates of interest than standard, secured loans since they are riskier for the lender.
Mini Bonds
A mini-bond issue enables a company to raise debt funding from a group of individual lenders, usually its customers. Bond issues below €5m do not require a full legal prospectus and any bonds issued cannot normally be traded from one investor to another. In effect, most mini-bond issues are unsecured loans that must be held for their full term or until the borrower redeems them.
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The homepage has been simplified so that users will follow five simple steps to find the finding options they need.
The first step is to register, which gives full access to the funder microsites featured on our website, as well as all the tools that help businesses determine their funding options.
Our useful tool titled ‘What’s your funding challenge?’ helps filter the types of relevant funding options based on a business’ circumstances. Every business is unique, but specific factors will establish that some funding options are more suited than others. Filling this in is the second step.
The third step is to browse the funder’s microsites, of which we have over 80, which is more than double than any other platform!
To determine whether you are ‘funding ready’, follow step 4, which is a self-diagnosis tool that greatly increases the readiness to apply for funding.
Finally, the fifth step is to contact the funders directly through these microsites to officially start your application process.
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