Alternative Finance in the UK in loans.co.uk

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Eileen Rogers
10 years ago
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1 Alternative Finance in the UK in loans.co.uk

2 Definition of Alternative Finance...finance not traditionally offered by the High Street banks and/or a form of finance that was not available 5 years ago

3 History of Alternative Finance 1700s 1885 Jonathan Swift creates the Irish Loan Fund with micro loans to farmers and small businesses Joseph Pulitzer organises a public campaign to raise $100,000 for the plinth of the Statue of Liberty. All donations are published in his New York World newspaper (use of social media?) 1997 World Tour by the band Marillion is financed via a fan based internet campaign 2004 UK Peer to peer lender Zopa founded 2006 OnDeck launched in the USA 2007 Merchant Cash Advances come to the UK (Merchant Cash Express) 2008 Financial Crash sees lenders retreat from market 2009 KickStarter launches in USA 2010 Funding Circle launch crowdfunded P2B loans in the UK 2011 MarketInvoice start Invoice Trading 2012 Seedrs launches in the UK 2013 Government announces a 300m investment in SMEs via crowdfunding 2013 EZBOB starts lending STUBLs to UK SMEs 2014 AIM listed Chapel Down Vineyard raises 3.9m in equity funding on Seedrs 2015 Retail Bond for Taylor Street Barista closes raising 1.25m via Crowdcube

) 1997 World Tour by the band Marillion is financed via a fan based internet campaign 2004 UK Peer to peer lender Zopa founded 2006 OnDeck launched in the USA 2007 Merchant Cash Advances come to the

4 Characteristics of Alternative Finance Companies still need a credible story however, you can leverage the mania in sectors like Crowdfunding as investors are not as circumspect as professional lenders. Amounts are (for now) mainly in the hundreds of thousands but are increasing and deals of several million have been done Technology has been and remains a big driver in innovation The market is only partly regulated

Amounts are (for now) mainly in the hundreds of thousands but are increasing and deals of several

5 Types of Alternative Finance Crowdfunding Invoice Finance/Trading Merchant Cash Advances Short Term Unsecured Business Loans (STUBLs) Pension Led Business Finance Overdraft Alternatives Retail Bonds

Unsecured Business Loans (STUBLs) Pension Led

6 Types of Crowdfunding Crowdfunding DEBT Peer to peer lending Crowd lending EQUITY EIS/SEIS Rewards/ Donations Pre ordering goods Social Enterprises Causes/Charity

7 Crowdfunding Debt finance options Up to 250,000 Unsecured or several million Secured Available Repayment terms up to 5 years LTDs, sole traders, partnerships can all apply Minimum 2 years Trading History required Good Credit record required Investors bid on your loan and you get the average of the lowest successful bidders Process should take no longer than 2 weeks Cost of raising finance generally 2 5%

History required Good Credit record required Investors bid on your loan and you get the average of

8 Crowdfunding Equity options Raise up to 150,000 in equity investment as a Startup Raise up to 1m in equity as a trading company Fees are 5 7.5% of the funds raised

9 Crowdfunding Rewards/Donation options Altruistic/Philanthropic funding from Indiegogo and Kickstarter Not equity sold but rewards or early access or nothing! Popular with social enterprpises, creative media and Not for Profit organisations

Kickstarter Not equity sold but rewards or early access or

10 Crowdfunding Invoice Finance options Sell selective invoices as suits you without an ongoing commitment Only creditworthy debts eligible Good Credit record required Investors bid in an auction to reduce the discount you have to pay Auctioning multiple invoices at once is also possible Process takes 2 5 days Charges from % of each invoice

Investors bid in an auction to reduce the discount you have to pay Auctioning multiple

11 Merchant Cash Advances Securitisation or sale of future credit card receivables based on historic turnover trends Unsecured, short term finance Fixed fee with no repayment deadlines Very flexible with adverse credit cases Repayment is by giving a small percentage of all future sales towards repaying the advance + fee

no repayment deadlines Very flexible with adverse credit cases Repayment is by

12 Short Term Unsecured Business Loans Loans for periods typically up to 12 months but can be up to 3 years Rapid application process (same day funding possible) Documentation light Sometimes set up fees; interest thereafter charged monthly Flexible loans allowing early repayment Used for cash flow management

possible) Documentation light Sometimes set up fees; interest thereafter

13 Pension Led Business Finance Use an existing personal pension from previous employment or a SIPP to offer a loan to your own company via a SSAS Finance can either be via a loan or a Sale & Leaseback Loans must be secured on an asset with a first charge. Intellectual Property is an eligible asset Loans must be at commercial terms Approved by HMRC and the Pensions Regulator

Sale & Leaseback Loans must be secured on an asset with a first charge.

14 Overdraft Alternatives Flexible finance of up to 500,000 Security required, usually property or invoices Charges for the facility (approx 0.5% per month) and for usage (approx % per day Good credit history and minimum 6 months trading required in most cases Takes 1 2 weeks to arrange

0.5% per month) and for usage (approx 0.1 0.

15 Retail Bonds Not a new idea but the way they are being sourced and financed is Strong promotion through social media; popular with consumer based products e.g. Chilango s Burrito bond (8%), River Cottage (7%), Taylor Street Barristas (8%) Due to novelty value and productrelated perks companies benefit from a lower rate of interest

16 Future of Alternative Finance Continued rapid growth and innovation Larger deals Greater appetite for risk Yield compression More institutional involvement Greater cooperation with the traditional banking sector Vertical integration/consolidation Increased regulation Successful exits are needed e.g. Mill Group Residential At some point a set back and loss of public confidence perhaps with political ramifications and legislative changes Technology has been and remains a big driver in innovation

17 Beech House Knaves Beech Business Centre Davies Way Loudwater Buckinghamshire HP10 9SD

FUNDING SNAPSHOT 2013

FUNDING SNAPSHOT 2013 Case Study How do I raise more finance for my business? Until recently the big banks were the first stop for businesses wanting to borrow money, but the marketplace is changing. Alternative