Whether you’re a solicitor advising on a merger or acquisition, an accountant advising on tax or a commercial finance broker advising on how to finance a growing business, as a business advisor your clients look to you for advice on how to move their business forward. Here we help you easily explain alternative finance to your clients and help you navigate which form of finance might be best for your clients, during the various stages of their business growth.
Why Alternative Finance?
It’ll be no surprise to you that small businesses have long struggled to get finance when they need it through traditional route, such as the banks. Alternative finance models have sought to serve these businesses by making it easier to get finance whether it be a business loan, equity or even invoice financing.
Aside for the ability to be able to get finance, and raise the finance more quickly, alternative finance generally involves businesses borrowing or raising equity from individuals, these individuals can add value to the business by becoming advocates or new customers for the business.
Types of Alternative Finance
If you’re new to the world of alternative finance, it can at first, seem confusing and difficult to understand how different platforms differ from each other and which one is able to serve the needs of your clients best at the time in question.
Pre-revenue and pre-profit businesses
It’s really with these types of businesses that crowdfunding started. The likes of kickstarter and Indegogo helped entrepreneurs get their businesses and ideas off the ground by getting individuals to back them with the promise of a reward of some sort. These sites are known as ‘reward-based crowdfunding’ and suites businesses that have either not yet really got going.
Within a similar bracket there are platforms like Seedrs and Crowdcube that offer equity finance to businesses looking to give their startup the next boost it needs to further develop and grow. These platforms are excellent for B2C type businesses as the investment is received from individual people who in many cases like the product or service a business is developing and would like to buy it themselves. The investors on these platforms investing varying amounts sometimes as little as £10 to some larger individual investors, investing tens, if not hundreds of thousands.
Businesses raising finance via these platforms can typically look to raise anything from £50,000 upwards and can decide on how much equity they’re willing to offer for the investment.
| Platform | Type | Av. Amount Raised | Success Fee | Success Rate | Campaign Duration |
| Seedrs | Equity | £750k | 6% | 74% | 1-60 days |
| Kickstarter | Rewards | $10k | 5% | 36.84% | 1-60 days |
| CrowdCube | Equity | £380,000 | 7% | 50% | 1-30 days |
| Indegogo | Rewards | $110k | 4-9% | 17.1% | 1-120 days |
Small to medium businesses
There’s also a whole market that caters for more mature businesses that have already got off the ground and are successfully trading and are looking to finance the next stage of growth, with debt rather than equity, however there are also platforms that do cater for later stage equity finance.
These types of platforms are commonly known as P2P lending, or P2B (business) platforms. As with the above-mentioned types of alternative funding platforms, much of the investment is sought form individual lenders, but many platforms also have institutional funds lending to the businesses.
The platforms will typically take the businesses through a credit application process which will determine the rate of the loan. The interaction with investors on these platforms vary, with some platforms fostering no interaction between the ‘crowd’ and the business, and others encouraging it by hosting discussion forums where potential investors and businesses can engage in Q&A.
The finance available on these platforms varies from a few hundred pounds for very small businesses to thousands and sometimes millions of pounds. Loan terms typically vary from 6-60 months. Depending on the platform and the amount being raised, varying levels of security are required. Typically, businesses can get an unsecured business loan of up to £50-200k depending on the platform and their credit profile.
Advising your clients on crowdfunding and peer to peer lending.
When advising your clients on which type of alternative finance route to take, it’s important that you understand both their needs and requirements as well as that of the platforms. As with any type of funding, preparation is key.
Prepare the finances
Whilst a relatively new industry, don’t underestimate the due diligence that the platforms undertake. So, make sure you know what will be requested and help your client prepare their financial statements and cash flow forecasts so that they are ‘investor ready’.
Communicate effectively
Communicating why your client is raising finance and what they intend to do with the finance will be key to raising the finance. Investors will want to know that the business has thought through what they’re going to do with the money before investing.
If the platform has a discussion forum to interact with potential lenders, don’t be afraid of engaging. You will often be able to secure a lower rate of finance if you’re able to build up a rapport with the investors and add value to your client’s business by creating a potentially new client base.
Legalities
Before completing any of the finance, make sure you understand the obligations and terms that apply to the specific agreement and ensure that you communicate these clearly to your client. Look for early repayment terms and make sure you understand the fees.
You want to be able to provide a great service to your client, but you’ll also want to build a strong relationship with the platforms, who will help fund your future clients.
Should you advise your client to use P2P lending or crowdfunding?
Perhaps not every client, but you should at least make sure it’s one of the options that you consider when working with your clients.
| Provider | Min Trading Hitory (yrs) | Min Turnover req. | Finance Amount | Interest Rate | Term (mths) | Secured / Unsecured | Early Repayment | Fee |
| Rebuildingsociety.com | 2 | £150k | £25k + | 4% -20% | 6-60 | Both | yes | 4% |
| ThinCats | 2 | - | £200k+ | 5% + | 3-48 | Secured | yes | 2.5% |
| Funding Circle | 2 | - | £10k-£150k | 1.9% + | 6-60 | Both | yes | 1% per year |
| ArchOver | 2 | £2m | 7.70%-13% | 3-36 | Both | yes | 4.8% | |
| Lending Crowd | 2 | £100k | £5k-£500k | 5.95%+ | 6-60 | Both | yes | 2-5% |
Click on each of the above to see how they compare to rebuildingsociety.com
rebuildingsociety.com provides secured and unsecured business loans to UK businesses with a minimum 2 years trading history. As a corporate financial advisor, you are able to set your own fee for the arrangement of the loan and we’ll ensure that this is paid directly to you on drawdown of the funds.
We offer loan terms of between 6-60 months and businesses can borrow amounts form £25,000 upwards. There are no early redemption fees. We also offer significantly reduced rates of interest for businesses that support their loan with security. Businesses often have the funds raised within 1-4 weeks of application.
