According to one survey, over a quarter of those whose loan applications were turned down by banks were given no reason for the rejection. Company owners may be left wondering what the problem was: was there a problem with the way the application was put together, or is the company’s performance not as strong as they had thought? Unfortunately, it may not be either. Even businesses that are well run may be turned down, and this is why: The most recent set of banking guidelines, Basel III, was issued in response to the banking crisis of 2008. Its goal was to strengthen the overall financial system by making banks rebalance the amount of risk in their portfolio. But the side-effect of this was to make it difficult for banks to lend to many types of company, including those with a smaller turnover and those without “hard assets” like property. A recent study suggested the shortfall in business funding is as much as £20 billion.
Banks aren’t the only source of business finance, however. As they often have the longest relationship and hold the most financial information on their customers it’s reasonable for a business to go to their bank first, but if the result is a negative that should not mean the end of the search. “Alternative” forms of finance such as crowdlending and crowdfunding are currently experiencing rapid expansion precisely because they can provide for the businesses that the banks cannot. In the UK, the industry is growing at over 100% year on year.
Crowdfunding and crowdlending source the capital for finance from “crowds” of retail and institutional investors. Crowdfunding, either for equity or rewards, can provide a big cash injection for early-stage companies with big plans or innovative products. Depending on the project and the management of the promotional campaign, crowdfunding can sometimes raise even more money than was originally requested. Crowd lending enables more established companies to access business loans. From the perspective of the borrower the process is similar to applying to a bank, in that standard forms of financial information such as cash flow forecasts and management accounts are required. However in contrast to banks, crowd lending is able to be more flexible in its approach to lending and utilise a wider range of information in its evaluation. This makes it more focused on a business’ future ability to pay, rather than its history in black and red. It is also much faster than a bank, sometimes able to turn around a request in just a few days to enable businesses to take advantage of sudden opportunities.
If your company’s request for financing has been turned down, don’t let that put you off – crowdfunding and crowd lending may well be able to provide the solution.
Sophie Koenig is Content Marketing Executive at FundingKnight, an award-winning business crowdlender. Established in 2012, FundingKnight is one of the fastest growing crowdlenders in the UK.
FundingKnight’s Managing Director, Jasper Ehrhardt, will be presenting on crowdlending and its impact on the UK’s financial landscape on Tuesday the 2 nd at 10am.
You can also come and visit our stand, no. stand L31 if you have any questions – we will have credit experts on hand both days of the event.Visit website