Power up your small business with hi-tech finance

Saber Powersports boat at high speed Simeon Penn's powerboat experience company received a £25,000 loan from Funding Circle

When Simeon Penn, director of powerboat experience company Saber Powersports, needed a loan for a new boat, he didn't go to his bank.

Technology of Business

Instead, he got the money from Funding Circle, an online marketplace that allows individual savers to lend money directly to small and medium-sized businesses (SMEs).

Mr Penn's accountant suggested he try this alternative form of funding after the bank failed to respond to his loan request after three weeks.

With Funding Circle, the £25,000 that Saber needed was in the company account two weeks later and the application process was very simple, Mr Penn said. Even more unusually, he spoke to a "real person" who took an interest in his business.

By contrast, the bank "was making him jump through hoops", he said.

He was so impressed by the process that when he needed a further £15,000 to replace an engine and to increase his company's marketing before the peak summer season, he went back to Funding Circle.

"It's definitely the future; it's where businesses are going to go," he said.

'Financing on its head'

This type of peer-to-peer funding (P2P) - also known as crowdfunding - turns financing on its head.

Instead of asking a bank or a few individuals for large sums of money, a business can ask a large number of people for just a small amount each. The more people who come forward to lend, the lower the interest rate a company can secure.

Samir Desai, Funding Circle's chief executive and co-founder, believes speed is the key advantage for SMEs, with businesses getting access to cash within two weeks rather than the three months it typically takes the banks to stump up.

Funding Circle founders Founders Samir Desai, James Meekings and Andrew Mullinger are laughing all the way past the banks

"There is no doubt that technology is now in the middle of changing financial services for good," he says.

Carol Sullivan, who runs Divorce Negotiator, a firm which aims to help separating couples divide their financial assets, borrowed £15,000 over three years at a rate of 6% from Zopa, the UK's oldest P2P lender for SMEs.

She used the money to fund a TV advertising campaign and says: "The application process was much simpler and quicker than it would have been with a bank."

Kabbage credit

Open-source data handling systems, such as Hadoop, MongoDB and Cassandra, which can process and structure vast amounts of data from a wide and growing range of sources, including social media, have helped alternative lenders assess borrowers' creditworthiness to a much higher degree of accuracy than before.

Kabbage logo Kabbage offers working capital to online merchants

And this data crunching ability is encouraging new, flexible forms of finance.

For example, Kabbage, a fast-growing Atlanta-based company, offers working capital of up to £25,000 to small online businesses selling through eBay and Amazon.

It decides how much businesses can have by analysing their social network profiles and user feedback ratings, as much as their commercial transactions.

After merchants have been approved for funding - a process Kabbage says can take as little as seven minutes - the cash is deposited in their PayPal accounts, enabling them to buy more inventory and respond quickly to consumer demand.

Technology also underpins new "equity crowdfunding" platforms, whereby businesses give up a stake in their company in return for investors' cash.

For example, Inform Direct, a start-up that aims to make it easier for businesses to deal with Companies House, raised £450,000 in just two weeks using SyndicateRoom.

The platform, which is similar to Crowdcube and Seedrs, offers investment so long as the company seeking capital has secured backing from a lead investor first.

And philanthropic funding platforms such as Kickstarter have helped many small businesses and artists bring their projects to fruition.

Funding gap
Crowdfunding key on computer keyboard

P2P lending may be fast, but it isn't necessarily the cheapest way to raise business capital.

Interest rates for the past 100 loans made via Funding Circle's platform ranged from 7.3% to 12.4%, the company says. This is higher than the 4.4% to 7.2% range charged by banks for fixed-rate loans to SMEs, according to the British Bankers Association (BBA).

This may be one reason why the UK alternative finance market is still relatively tiny, albeit growing fast.

In 2011, it provided £26.7m of finance to SMEs. By last year, that figure had jumped to £332m, benefiting an estimated 5,000 SMEs, according to research from enterprise charity Nesta.

Poor service from banks is certainly helping this growth.

Last November, government adviser Lawrence Tomlinson issued a damning report on the banks' "disturbing patterns of behaviour" towards SMEs.

He said many businesses were being "actively deterred from accessing finance before being given the chance to apply".

Boneshakered Bigwheel bike Crowdfunding platforms such as Kickstarter have helped many projects become a commercial reality

But awareness of funding alternatives remains low. A recent survey from the Federation of Small Businesses found that just 37% of SMEs knew about them.

And according to the BBA, the UK's main five banks still account for 60% - around £100bn - of all loans and overdraft borrowing by SMEs.

Regulatory approval

The reliability of the underlying technology is increasing confidence in the sector, however.

The UK government allocated £20m in 2013 and a further £40m this year to inject directly into small businesses via Funding Circle, and this month the Financial Conduct Authority began regulating the sector for the first time, giving it an official stamp of approval.

And in this year's Budget, Chancellor George Osborne announced that P2P lending will be allowed within tax-free individual savings accounts for the first time.

Giles Andrews, founder and chief executive of Zopa, is confident that his industry is poised for rapid expansion.

"At the moment we are all busy competing with banks. Eventually we will be competing with firms like us, which will be a nice problem to have," he says.

More on This Story

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

Business Live

  1.  
    10:31: UK GDP

    In fairness to the OBR, it did originally forecast GDP growth for 2014 of 2.7% back in March last year. We wonder why it revised up its prediction?

     
  2.  
    10:22: UK GDP
    Graph showing components of UK GDP

    It's worth noting a couple of things from today's GDP figures. The first is that the official estimate is below the forecast from the Office for Budget Responsibility at the time of the Autumn Statement that economic growth would be 3% in 2014. The second is that while, as the ONS says, there has been widespread growth across all major components of GDP since the start of 2013, the service industries remain the largest and steadiest contributor to economic growth.

     
  3.  
    10:06: Easyjet trading update
    An easyJet plane,

    Easyjet is up 3% after reporting a 3.8% rise in revenue to £931m for the three months to the end of December. It adds passenger numbers grew by 4.1% in the quarter to 14.9 million. Easyjet says first half bookings are in line with last year and that it expects to report a first half pre-tax loss of between £10m and £30m assuming normal levels of disruption compared to the £53m loss reported in the first half of last year.

     
  4.  
    Apprenticeships Via Email Martyn Fenton, Business live reader

    "So who is largest supplier of apprenticeships in UK? The armed forces. And where have been government cuts been focussed on - the armed forces. Double speak or Mr Cameron doesn't know his brief."

     
  5.  
    09:30: Banking figures
    key

    Some banking stats from the British Bankers' Association, which lobbies for the industry. ISA deposits in 2014 were 57% higher than in 2013 after the increase in investment limits. House purchase approvals up 9% in 2014.

     
  6.  
    09:30: UK GDP

    For the whole of 2014 the UK economy grew by 2.6%. That marks the best economic performance since 2007, the Office For National Statistics says.

     
  7.  
    UK GDP 09:30: Breaking News

    The UK economy grew by 0.5% in the last three months of 2014, official figures show.

     
  8.  
    GDP preview Via Email Tom Turner, Business live reader

    "Is Richard Portes suggesting we should find a different surgeon then? Because the only two on offer are; the one that nearly killed us and the one that has us recovering.... If a little slower than he thought it might."

     
  9.  
    09:16: Universal benefits BBC Radio 4

    Asked if well-off pensioners could lose benefits such as free travel passes and the Winter Fuel Allowance after the next election , something the prime minister promised would be protected at the last election, Mr Cameron says: "I've always said there aren't huge savings to be made by axing these benefits... I don't think it would be fair to ask pensioners to make the biggest adjustment." He adds pensioners have £800 more in their pension than before he came to power.

     
  10.  
    09:02: Paper review
    paper

    More Greek analysis from the newspapers this morning. Greece and its creditors "dig in" over the debt struggle, says the FT. The Wall St Journal says Europe's "political establishment moved quickly to douse hopes" of a debt restructure. The Times's business section leads on a drop in Greek bank shares. The Telegraph has more on that benefit cap cut proposed by Mr Cameron.

     
  11.  
    Via Email Flydubai spokesperson

    After landing at Baghdad International Airport (BGW) on 26 January 2015, damage to the aircraft fuselage consistent with small arms fire was discovered on flydubai flight FZ 215. All the passengers disembarked normally through the jet bridge. No medical attention was required at the airport. Passengers from Baghdad to Dubai were accommodated on a replacement aircraft. An investigation is underway to establish what happened.

     
  12.  
    08:43: Market update

    Small movements early on in European share trading. London's benchmark FTSE 100 index of top companies has nudged 0.08% lower to 6,846.74 points, Frankfurt's DAX 30 shed 0.12% to 10,785.90 and the CAC 40 in Paris lost 0.07% to 4,671.76 points.

     
  13.  
    08:36: Aircraft fired on
    plane

    Flights between the United Arab Emirates and Baghdad have been suspended after a FlyDubai aircraft was hit by gunfire as it approached the Iraqi capital. No-one was injured in the attack, the budget carrier said. Etihad and Emirates have also suspended their services to Baghdad as a precaution.

     
  14.  
    08:33: Economy BBC Breakfast
    Miliband

    "There are big economic and social challenges," says Labour leader Ed Miliband on Breakfast. "They [the Conservative party] say everything's fixed... I don't agree. People are £1,600 worse off at the end of this parliament than the beginning."

     
  15.  
    08:28: Welfare to work BBC Radio 4

    Did you hear the starting gun? It's 100 days until the general election, so campaigning begins. Mr Cameron's talking on Today about proposals to cut the benefit cap to £23,000. Will that mean more people go out and find work? The Prime Minister says that around 40% of people that have been effected by the current cap have gone out and sought work. He says the government will use the money saved from reducing the benefit cap - if the Conservatives win the election - to create 3 million apprenticeships.

     
  16.  
    08:17: GDP preview BBC Radio 4

    Economic professor Richard Portes of the Centre for Economic Policy Research takes up Mr Littlewood's surgical metaphor in relation to the government's economic policies but says "the patient almost died". The actual proportion of people in work is still lower than before the financial crisis while wages are 6% lower than they should be, he says. If the government points to the way in which the deficit has been handled its story ahead of the election isn't very good at all, he adds.

     
  17.  
    Apprenticeships Via Email Chris Pocock, a Business live reader from Sheffield

    "The pay of apprentices at Ford Dagenham is not typical. The government's own evidence to the Low Pay Commission indicates shockingly high levels of non-compliance by employers in paying apprentices the national minimum wage."

     
  18.  
    07:53: Carpetright sales

    Carpetright has reported a 7.5% rise in UK like-for-like sales in the three months to 24 January. It has also kept its full year profit guidance unchanged. Like-for-like sale in the rest of Europe rose 1.7%, it adds.

     
  19.  
    07:40: GDP preview BBC Radio 4

    The government hasn't stuck to its deficit plans, says Mark Littlewood on Today, but it has stuck to its spending plans. We have several more years before we will be living within our means but "the direction of travel" is the most important thing. "If the government had said to hell with this, we're going to carry on as before, then markets would have had more of a wobble," he says, but a deficit reduction target of five years achieved in eight, while disappointing, is far less of a concern.

     
  20.  
    07:25: Apprenticeships BBC Breakfast
    Cameron

    Prime Minister David Cameron is on Breakfast. He's talking about apprenticeships: "we overplayed university and downplayed apprenticeships" he says, whereas "both are important." He says after visiting apprentices at Ford in Dagenham trainees can earn £30,000 after four years. Does that match your experience, readers? bizlivepage@bbc.co.uk

     
  21.  
    Facebook down Via Twitter Rory Cellan-Jones Technology correspondent

    "Hacker group Lizard Squad -@lizardmafia - claiming it's taken down Facebook, Instagram and other sites."

     
  22.  
    07:14: Aer Lingus bid

    British Airways owner IAG says the board of Aer Lingus has indicated "that the financial terms of [its] proposal are at a level at which it would be willing to recommend [the takeover approach] to Aer Lingus shareholders" after Monday's €2.55 per share offer for the Irish carrier. Aer Lingus appears to be letting IAG have a look at its accounts, granting it access to "perform a limited period of confirmatory due diligence."

     
  23.  
    07:12: Facebook back!
    facebook

    Facebook appears to be back. Panic over, everyone.

     
  24.  
    07:10: Facebook down

    Facebook is down in France, Australia, Spain and Singapore, readers and colleagues tell us. A colleague is busy furiously poking the organisation to find out what's going on. Reader Kath Olliffe in Sydney writes in: "It's a strange feeling because you kind of want to post a status that FB is down and what are we all to do. You want to look up FB to see if there is something wrong with FB!"

     
  25.  
    07:07: GDP preview BBC Radio 4

    The latest estimate of UK economic growth will be released at 9:30 today and the economic recovery is looking increasingly likely to be the government's main story during the election. Has it a good story to tell? Mark Littlewood, director general at the Institute of Economic Affairs, tells Today that broadly, yes it does. He thinks the government will say: "we're only about half way through the surgery and May isn't the time to change the surgeon".

     
  26.  
    06:55: GDP preview BBC Breakfast
    stoke

    Not to be out-done by Wake Up to Money's trip to Aston, Breakfast has sent presenter Steph McGovern to a ceramics factory in Stoke to see if the predicted GDP growth is benefiting people. Lisa Grimley says supermarket prices remain high, especially food. Energy bills need to come down before things improve. Since the credit crisis, petrol prices have reduced and that's about it. "It's a struggle for young people."

     
  27.  
    Facebook down Via Email Steven Weerdenburg Business live reader

    It's 1.50 am and Facebook is down in Toronto. Looks like I might have to go to sleep after all.

     
  28.  
    06:47: GDP preview Radio 5 live

    Wake Up to Money presenter Adam Parsons is in East End Foods in Aston, near Birmingham. "It's like being in Terminal 2" he says. He's there in preparation for today's GDP figure. Jason Wouhra, director of the firm, says stable interest rates have helped confidence in investing. Curry ingredients, corn flakes and coke are the more popular items.

     
  29.  
    06:38: Facebook down
    offline

    Forget the GDP figures. This is much bigger news. Facebook is offline everyone. Facebook is down! Is this just a UK problem? Get in touch and let us know at bizlivepage@bbc.co.uk or tweet us @bbcbusiness to tell us how you are coping.

     
  30.  
    06:32: GDP preview Radio 5 live

    Virginie Maisonneuve of asset manager Pimco is on Wake Up to Money talking about GDP. She expects 0.6% growth in this fourth quarter first estimate from the Office for National Statistics. GDP is forecast by a number of experts to have grown by 2.6% for the year, the same level as in 2007 and up from 1.7% in 2013.

     
  31.  
    06:23: Market update Radio 5 live

    Virginie Maisonneuve of asset manager Pimco is talking on Wake Up to Money about the markets. They were mainly up yesterday. Minority parties taking power in Europe has "not been taken seriously" by the market she says.

     
  32.  
    06:07: Greek election fallout Radio 5 live

    More from Yannis Zabetakis, a lecturer at the university of Athens, is on Wake Up to Money. Youth unemployment at 50% is another dangerous signal for the country, he says. He also denies Greece is a special case. While there's growth in Britain under austerity, the wealth gap is widening and there are more people in poverty, he says.

     
  33.  
    06:02: Greek election fallout Radio 5 live
    A supporter of Alexis Tsipras, leader of Syriza left-wing party, holds the Greek and French flag

    Yannis Zabetakis, a lecturer at the university of Athens, is on 5 live talking about the debt burden on Greece. More than a million unemployed means paying off the debt is very difficult, he says. Employment prospects for his students are very poor and he recommends setting up an export company or going abroad. Salaries are going down and tax up, he adds.

     
  34.  
    06:01: Matthew West Business Reporter

    Morning folks. Get in touch at bizlivepage@bbc.co.uk ot tweet us at @bbcbusiness.

     
  35.  
    06:00: Howard Mustoe Business reporter

    Good morning. At 09:30 we expect the first estimate for fourth quarter gross domestic product for the UK. There'll also be company results from 07:00. Stay with us.

     

Features

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.