Is it time you followed the crowd?

Is it time you followed the crowd?

Jeremy Middleton charts the rise of crowd-funding and weighs up its pros and cons.

There still is plenty of evidence that a lack of funding from banks is stifling growth and development of companies.

This is borne out by the latest statistics from the British Bankers Association that showed that high street banks cut lending to non-financial companies by £1.5 billion in August and by an average £1.6bn in the preceding six months.

There also have been reports recently that Rolls Royce has been lending money to some of its smaller suppliers because they were being starved of credit by their banks.

Banks may insist that the decline in lending is down to muted demand.  However, there is sufficient anecdotal evidence for me to be sure that this is not the only factor.  Indeed, in some instances, banks are tightening lending criteria to the point of not lending.

It is no wonder then that this situation has left many directors, owners and entrepreneurs looking for alternative sources of funding.

The early development of crowd funding or peer to peer financing services is an appropriate and potentially exciting response to this.  Examples include on-line lending market places such as Funding Circle which has lent £53m to small businesses.

A new player in this space is Assetz SME Capital, a new venture that combines an on-line site directly linking savers to small businesses seeking loans with experienced relationship managers who work with the companies.  In this case there will be a physical relationship with the business through Relationship Managers.

Given that there are people who have cash and yet the banks won’t pay them any significant level of interest and there are creditworthy borrowers who the banks won’t lend to, broking services such as these offer potential solutions to the needs of SMEs.

I get involved in providing finance in a variety of ways including some non regulated lending for commercial purposes and some invoice discounting.  I could certainly see myself, and other investors with cash, looking to develop further offerings in this area, either on our own account, collectively or in partnership with those developing peer to peer financing services.

It is vitally important for the economic wellbeing, not only of the North East, but the country as a whole, that we encourage individuals to set up businesses, to develop ideas, to generate employment and to, in turn, cascade wealth down the supply chain.

To succeed businesses need access to finance and the more avenues there are for them to access funding, when there is a lending squeeze by the major financial institutions the better it will be.  These services can provide another crucial cog in the entrepreneurial wheel.

Changing their mindset away from the tradition of borrowing money from banks to alterative sources is among the characteristics an entrepreneur needs to embrace in the current fiscal climate.