As you’ll know if you paid attention in English, Polonius didn’t mince words when he was giving some fatherly advice to Laertes:
Neither a borrower nor a lender be
For loan oft loses both itself and friend
And borrowing dulls the edge of husbandry
This above all things
To thine own self be true
Sound advice – so why is it that so many sober, respectable people are ignoring Polonius and finding common ground with one of Will’s less savoury characters, Shylock?
Over the next two weeks I’m going to look at alternative forms of borrowing and raising money for your business. Traditionally, lending to businesses in the UK has almost exclusively been the preserve of the high street banks. I have a feeling that ten years down the road the picture will look very different, and hopefully this post and next week’s will highlight the potential changes and opportunities for you.
Let me say straightaway that I have plenty of friends working in banking – and they’re working hard and trying to do their best for clients in what has been a very difficult economic climate. But I also have plenty of Board members and clients running businesses – and I’ve lost count of the number of times I’ve heard, ‘they wanted so much paperwork; they wanted so much security; and then at the last minute some damn risk assessment unit turned me down for no reason at all…’
No doubt the risk assessment unit did have a reason, but there are hundreds of good, well-run businesses who can afford the repayments getting turned down by the banks. The market for alternative forms of finance and capital is only going to grow.
So this week I’m looking at social lending, and next week I’ll be examining the growing popularity of crowdfunding.
First things first: what is social lending? Simple, it’s one person – or a group of people – lending to another via an intermediary. Probably the most well known intermediary in this country is Zopa – www.zopa.com – and for lenders their pitch is simple. You’ll get a better rate of interest than you will by putting your money on deposit – very attractive now that the new Governor of the Bank of England has committed himself to low interest rates for some time to come.
For borrowers, a lender like Zopa is equally attractive: it’s simple and, very often, it’s cheaper than borrowing from the banks.
The vast majority of social lending so far has been to individual customers, not to businesses. But with Zopa now set to receive £10m of Government money to lend to sole traders, the move towards lending to businesses is beginning to gather pace, especially as Zopa has been joined in the social lending marketplace by other lenders including the SME specialist Funding Circle. (Have a look at their website. Interesting isn’t the word – and you’ll see examples of businesses being funded by hundreds of different lenders.)
Right now the amount of money available for funding through social lending is minuscule compared to the banks – but the pendulum is only swinging one way. Nearly all our businesses are going to need funding at some stage in their development. You’d be well advised to keep an eye on lenders like Zopa and Funding Circle – social lenders look set to become a serious funding alternative for the well managed SME.