Alternative Lending is Becoming Mainstream and Bristol is Leading the Way

September 2014

THE landscape of business borrowing is shifting. Banks are no longer the only way to finance growth. Alternative lenders are moving in from the fringes to become credible and established routes for businesses to fund their expansion, particularly among smaller businesses.

An example is 20th Century Flicks. While most video stores have disappeared from the high street, Clifton-based 20th Century Flicks has retained a loyal customer base. So much so that the store wants to expand and move to new premises in Christmas Steps.

It houses the UK's largest collection of movies for rent and sale, it aims to cement its place as a fixture in Bristol's film scene. Given the shift in the market to online streaming and video on demand, it is perhaps not surprising that the banks it approached would not financially back its plans.

Ten years ago, that would have been the end of it. But the owners decided to appeal to his customers direct, launching a crowd-funding appeal through Fundsurfer.

David Taylor, 35, said: "Launching a crowd-funding campaign offers us a great platform for customers old and new to get involved in helping take the business to the next level."

He said there was still a niche for the business. "Movie habits are moving into online, but there's an important role for places like 20th Century Flicks to expand and offer something bigger, better and importantly more sustainable for the future," he said.

"We hope Bristol's film-loving population want to support what we're doing.

"It's important for Bristol that we stick around and we certainly don't want to fade out like so many other indie record and video shops."

Supporters can pledge anything up from £1, with film-related rewards for those putting in at least £5. Customers have responded. So far 108 people have made small pledges totalling just under £4,000. Its aim is £10,000 with 17 days to go.

It's not big money in business terms, but it is an amount many small businesses would struggle to raise.

Bristol has been fast to adopt alternative forms of business funding, with Fundsurfer, based at the Engine Shed in Temple Meads, one of those leading the way.

The platform has proved popular with designers, makers and creative people looking to raise relatively small amounts for projects, using a rewards-based model. But it can work for other businesses too. It recently added business loans of up to £5,000 through a peer-to-peer model and next year it will launch an equity element that may appeal to entrepreneurs starting out or looking to take their company to the next level.

Co-founder Oliver Mochizuki said: "It is no exaggeration to say that in the future alternative finance will generate trillions of pounds for creative and social ideas, companies and individuals as well as creating millions of jobs across the world.

"The crowd-funding market itself is growing at a truly phenomenal rate, doubling in size roughly every two months. There is a huge appetite for crowd funding in Bristol, we have over 60 projects in the pipeline being worked on after launching in May.

"The future of crowd funding certainly looks bright to us and it's a very exciting time to be running a platform, especially when based in a fantastic city like Bristol.

"Bristol can lead the way in alternative finance and we look forward to playing our part in that through Fundsurfer."

Banks continue to be big and important players in the business finance scene, of course. For most companies, they are still first and often final port of call.

Lloyds Bank recently restructured its commercial team, with David Beaumont talking control of the South West operation. David is the first to concede banks are now an important part of the funding picture, not all of it. He wants to encourage businesses to grow and flourish, wherever they find the cash.

"Whatever a business' goals may be, it is important that all possible options available to them are explored in order to make the most of the economic upturn and seize the latest opportunities for growth," he said.

It's encouraging to hear bankers taking such a progressive approach. But even the less forward thinking could see the decision taken out of their hands. The government is looking to legislate to force banks to refer rejected loan applications to potential alternative funders.

It's another way in which Bristol is leading this funding revolution. Bristolian Adam Tavener, chairman of Clifton Asset Management and Pensionledfunding, has been a key player, attending meetings at Downing Street on the subject.

Adam's firm specialises in pension-led funding, which allows business owners to invest their pension pots in their own business to fund growth. But he has become a champion for all forms, through the portal alternativebusinessfunding.co.uk, which helps companies find lenders and could be used by Government as a platform for banks to refer on those unsuccessful applicants.

Adam said: "This is a real opportunity for a collaborative culture to develop between the banking and alternative sectors, not just to refer businesses but to work together on multi-source deals that provide exactly the right shape of funding package for the business owner.

"Better sign-posting, would give businesses – particularly SMEs – safe access to approved lenders, while helping banks keep UK businesses growing by encouraging innovative or complementary funding."

Adam is speaking this morning at a breakfast event at the Aztec Hotel in Almondsbury, sharing the stage with Norman Chambers, deputy chief executive of the National Association of Commercial Finance Brokers.

Norman said many business owners go to their own bank, but give up if they are turned away.

"To maximise the chance of securing finance, it's important that business owners have knowledge of the full range of lending options available to them," he said.

"There are more than 150 lenders to businesses in the UK, but few SMEs know they exist or understand how to access them.

"The range of funding options for small businesses is growing, with firms increasingly securing finance from alternative lenders such as challenger banks or crowd funders."

Martyn Fraser, a partner in the Bristol office of accountancy and investment management group Smith & Williamson, said the wider choice of lenders was helping improve confidence in borrowing, although there were still barriers.

"It remains the case that many companies continue to cite difficulties in accessing the funding necessary to support their growth plans," he said. "This anecdotal evidence is borne out by the latest quarterly Bank of England statistics which highlighted an annualised reduction in net lending to businesses.

"Despite this, our experience is that businesses are still able to access finance, although they may need to explore a wider pool of providers than traditionally would have been the case."

He cited the growth of peer-to-peer platforms both in lending and equity as important at the smaller end of the market.

"Although the amounts involved are always going to be small relative to mainstream banks they are making a valuable contribution and increasingly present a viable alternative to SMEs seeking finance," he said.

"In one recent example the Mexican restaurant chain Chilango used the South West-based Crowdcube platform to raise over £2 million of debt."

But Martyn said lending options were opening up in the important corporate market too.

He said: "At the other end of the size spectrum the funding market is very liquid at the moment with a growing number of non-bank lenders, such as specialist credit funds, looking to lend directly to companies.

"Although this type of solution is aimed at larger, more established, companies it can provide a range of advantages over traditional bank debt such as the length over which the loan is made."

Echoing others in the sector, Martyn concluded: "The key message for business owners is that whatever the size of your business, it is now, more than ever, important to be aware of the full range of funding options available."