It almost feels like yesterday’s news to be writing a piece on the Alternative Business Funding (ABF) environment, so much having been written on the subject over the last twelve months or so.
Yet the momentum in the sector and the pace of change remain breath taking, with new entrants appearing seemingly daily, major banks confirming formal collaborations with alternative funders and legislation passing through parliament, supported by all sides, which will permanently reshape the way in which SME owners access finance in the future. Giddy stuff indeed. The sector is really delivering, too.
When the last intake of funders joined the Alternativebusinessfunding.co.uk portal we did a quick tot up of what the totals were in terms of funding provided to SME’s by the site participants.
That number came out at some two point seven billion pounds. Let me say that again, it’s worth repeating.
Collectively the funders on the ABF portal have provided two point seven billion pounds of funding to SME’s. That’s bank territory. That’s Government initiative territory. That’s simply staggering as the vast majority are relatively new, investor backed entrepreneurial businesses with highly constrained marketing budgets, starting from a position of almost zero visibility.
Clearly much of the rapid rise of the sector can be attributed to the vision and passion shown by the founders of the new breed funders. That alone, however, would not have been enough to get us to where we are today, or more importantly, where we will be when this sea change legislation comes down the pipeline later this year.
The speed with which the Government engaged with the ABF concept (lobbying for legislation to normalise the process of referring a declined applicant to other approved funders) and turned our ideas into a new law, the enthusiasm with which the financial press adopted this as a story worth telling and legislation worth saluting, and the universal approval voiced by the various trade and professional groupings all tell one story-it was time for a change.
Timing, of course, is everything. Let’s look at the key ingredients that went into this financial revolutionary soup. By and large the banks were (and continue to be) showing a decreased appetite for SME lending.
Evidently that led to the demand side ramping up. Technology has, however, also played a huge part. Without the internet and lots of clever software many of the new models, especially crowd and P2P simply couldn’t function, or at least not efficiently.
Lack of legacy system problems has also played a part in the sectors’ ability to be light on its feet and design ‘fit for purpose’ systems that deliver from the ground up rather than having to rely on plugging new functions into twenty year old software.
So, we have demand, and we have the tools to deliver. What else went into the recipe for the ABF revolution? Desire. On all sides, a desire to see things done differently, more fairly; transparency, fairness, speed and efficiency, these are the watchwords for the new breed funders.
I think in part this has its roots in the simple unwillingness of the mainstream lenders to fund small business. But to my mind the desire to change, to redesign how things were done, to rebalance access to finance away from the few into a genuinely competitive and democratised ecosystem, these are social and political aims, enjoying support from ministerial level to the man on the street.
In what world would the answer to the question ‘do you think it’s a good idea for small business to have fair access to finance for growth’ be no? Not a world which enjoys democratic freedoms and fosters its entrepreneurial sector as precious wealth creators anyway.
So, timing did the trick. Demand, technology and the political will to make serious and permanent change have brought us to this point. Real alternative funders providing precious billions to thousands of SME’s. One can only guess at the social and economic impact already delivered; tens, possibly hundreds of thousands of jobs saved or created. Hundreds of millions in payroll taxes delivered to the exchequer. The same amount in welfare benefits not having to be spent. Cost to the taxpayer? Zero. Hurrah for enterprise.
As the lead candidate for designation under the new bank referral legislation ABF is already influential in delivering this sectoral shift.
Over eight thousand businesses have now transited the site and been linked with an appropriate funder. Other platforms with their own messages and methodologies are beginning to emerge to create healthy competition in the signposting space, just as there is in the alternative funding space.
This momentum appears hard to resist and it is my personal view that ultimately the main banks will adopt this as the ‘new normal’ with their relationship managers providing funding solutions from a mix of their own products and those available from the alternative funders through sites like ABF.
What promise such a vision holds for the funders, old and new style, the businesses who will benefit from it, and our society as a whole, who will be directly impacted by an increase in performance and prosperity in the SME sector all driven by better access to more appropriate finance.