Q. My business requires additional funding to support expansion but I have few assets to give as security. One of my friends has used Crowd Funding. Is this a better route than bank funding?
A. Crowd Funding, or Peer-to-Peer lending as it is often called, is an increasingly popular way of financing situations such as these. It appeared about ten years ago and matches lenders to individual or corporate borrowers. It thrived after the 2007-8 financial crisis when banks tightened credit checks. Last year total lending was more than £3bn.
I always suggest talking to the bank first, but banks like to lend against security and can be slow and bureaucratic at times. However, funding from a bank is likely to be considerably cheaper than Crowd Funding. Where Crowd Funding can really play a part is where the amount being raised is relatively modest, meaning that any differential in rates is relatively small in actual £s. The additional flexibility and speed of response can therefore be worth the additional expense.
I also recommend that the subject of Personal Guarantee is considered. Banks will often ask for this where businesses have inadequate assets to act as security but many business owners find this uncomfortable as it brings personal assets in to play. In Crowd Funding this is far less likely to be the case.
Crowd Funding can be extremely useful where funding is required for expanding the business as the backers of these funds tend to respond more positively in these cases whereas banks are more concerned with affordability and repayment profile.
During times of expansion you might also consider the use of Confidential Invoice Discounting as this too can be a good way to fund growth.
I would be happy to meet and review which option might be most appropriate to your needs.
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