A leading city fund manager has suggested that businesses may increasingly turn to ‘alternative finance’ in the wake of the 2008 financial crisis, which saw many of them rejected by the banks. Speaking at a Professional Liverpool event, Nicola Horlick suggested that SMEs would increasingly turn away from traditional sources of finance as Finance Directors, Accountants and business owners became increasingly familiar with dealing with alternative finance providers. <!–more–>
Ms Horlick, who also owns alternative financing business Money & Co, suggested that many SMEs “have got so fed up with not being given money by banks that they don’t ask any more” and said she believed claims by Nesta that the market would grow in size from £1.7bn in 2014 to £4.4bn in 2015.
Refuting claims that alternative finance could be risky, particularly for lenders, Ms Horlick pointed out that Money & Co’s bad debt expectation was just 1%. Though less stringent than typical bank lending conditions, the firm does insist on borrowers having three years’ of filed accounts, a minimum turnover of £100,000, profitability in the last full financial year and UK limited company or Limited Liability Partnership status. The firm approves around 1 in 10 applications.
The alternative finance market has been on the rise for some time now, with businesses increasingly willing to investigate it as a funding opportunity. Services such as Money & Co typically operate on a ‘crowd-funding’ basis. Applicant businesses will submit details and the ‘middleman’ firm will match them with a lender, who has placed a bid on their requirements. Lenders receive a fee, which Money & Co claim is between 6% and 10%. Ms Horlick’s firm charges 1% on all transactions and enables loans between £50,000 and £3m. Individual lenders can bid as little as £10 in investment.
The market has been predicted to carry on rising in many quarters, as investors seek alternative sources of returns, as well as growing demand by businesses to investigate all available avenues of finance.