At the moment, banks are not doing enough for credit-worthy businesses. According to Bank of England statistics, lending to SMEs was down around three per cent each month in 2013 so far compared to 2012. Even the most credit-worthy businesses are struggling to access funding. Businesses need an alternative route to finance. It is clear that the current banking model is not delivering.
Crowdfunding provides a smart alternative for businesses to get the finance they need. This allows them to bypass the banks and borrow money directly from the general public. With lenders competing to fund the most credit-worthy businesses in exchange for a better rate of interest on their money, SMEs are more likely to get a loan at a favourable rate.
If a business in need of funding can demonstrate the financial strength to cover the interest costs and repay the loan, crowdfunding can serve any business in any sector, in any region. The stronger your company is financially, the lower the rate of interest that you will pay on your loan.
There are two principal reasons why lenders engage with online platforms. The first is to get a better return on their cash and the second is a sense that they are helping the UK economy and companies seeking to borrow need to remember this. Many lenders will want to support companies in a specific region or sector, or might just simply appreciate the quality of your proposal or company mission.
Last year, small and medium enterprises accounted for 99.9% of all private sector businesses in the UK and 48.1 per cent of private sector turnover, according to the Department for Business, Innvovation and Skills.
The UK economy may be beginning to grow again, but it is vital that SMEs have access to borrowing in order to maintain this momentum. Crowdfunding is part of the solution.
In the guest post Nicola Horlick, CEO of Money&Co, explains how crowdfunding can offer businesses something many aren’t getting right now: accessible finance.