Social Lending Websites – A new era for small business finance

The banks aren't interested, but social lending websites are. SmallBusiness.co.uk talks to three early-stage companies that have benefitted from the growing phenomenon in peer-to-peer SME fundraising.

It is an understatement to say that the past few years have been tough for entrepreneurs looking to raise money. With banks suffering from a liquidity crisis, angel investors spooked by economic uncertainty, and family and friends often hampered by a lack of spare cash in testing times, scraping together the required amounts to start up has been a task about as straightforward as solving a Rubik’s cube in a straightjacket. It all seemed bleak.

Step in the social lenders. In the past couple of years, there have emerged a new breed of website that allows ‘armchair investors’ and savers to lend directly to businesses. The process is often simple. Savers get interest or equity. Businesses get their cash. Everyone wins – or that’s the theory.

So what operators are out there? Funding Circle is perhaps the best-established of the bunch, having lent to some 450 businesses in excess of £17 million. But hot on their heels is Thincats and the equity-based crowdsourcing site Crowdcube.

SmallBusiness.co.uk talks to three early-stage companies that benefitted from this growing phenomenon in fundraising.

Tom Coomber, managing director, Artesano

Knitting wool wholesaler Artesano raised £65,000 on Funding Circle, which matches lenders with businesses online.

What does your company’s funding history look like?

We’re with a high street bank and we do have a loan and overdraft in place with them. When they took us on they told us that we’re a good business to be lending to, but every year our business is growing and we need more cash for stock…

Click here to read about Artesano and Funding Circle.

Richard Clarke, managing director, Red Advertising

Job advertising network Red Advertising secured a loan of £150,000 over five years through peer-to-peer lender ThinCats.com.

What has been your experience of trying to raise funds prior to discovering Thincats?

Our story must be a common one; trying to get credit out of the main banks was a nightmare. We’ve got a good track record, a robust, solvent business with solid accounts…

Click here to read about Red Advertising and Thincats.

Alex Kammerling, founder, Kammerling’s

Alex Kammerling founded spirit manufacturer Kammerling’s in 2011 and raised £180,000 through Crowdcube, a website that offers equity-based crowdsourcing as a means of raising funds.

Talk about your quest for finance pre Crowdcube, leading up to finding out about it.

We had been looking for finance for about ten months before we secured it. We started with people we knew and friends of friends. We also presented at the London Business school to a room full of angel investors which brought us more interest, although no deals…

Click here to read about Kammerling’s and Crowdcube.

These businesses are among the first in what will surely be a long line of companies to benefit from a new form of finance that doesn’t depend on the risk tolerance of banks. Finally, it looks like the small enterprises that can power an economic recovery are being given the means to grow and flourish. It’s not before time.

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