Diversification Benefits Can be Realised with a Helping Hand from the Crowd

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Julian Wells
27th August 2012

Finance out of reach for SME'sTesco’s announcement that it is going to offer mortgages is the latest move in a series of high-profile diversifications in the financial services market as organisations look to leverage the strength of their brand to kick-start another.

Unlike Tesco, which boasts piles of cash and an almost limitless credit facility, many businesses with plans to diversify their offering will face a familiar hurdle – finance.  

A manufacturer could need to lease machinery for a new product that its’ research suggests will be in high demand, or a business might need to take on larger premises to cater for an increased headcount as it enters a new market and recruits a team of specialists.

Diversification has a long history of bringing rewards to businesses, people immediately think of the likes of Virgin, but there are plenty of examples where a separate brand has been established in a new market or another company acquired and its existing position used as the foundation for further growth.

In the past many of these moves might have been financed by high street banks but we all know getting access to cash is a massive problem in industry now. We’re in an age of innovation, where sourcing funds from a crowd is now a first choice rather than a last resort for businesses looking to add to their core offerings.

It is a fast way of securing finance from people who are comfortable with the risk of lending money to a business, at rates dwarfed by commercial overdrafts, while the repayment arrangement works like any other loan.

Some crowdfunding platforms tend to concentrate on getting start-ups going, but it’s important to remember that finance is available to all businesses, with mature companies typically more attractive to more cautious investors as they have a longer trading record, which makes grading the risk much more precise.

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