Member Article

Crowdfunding is the wake-up call the banks need

Recent figures out indicate that bank lending for small businesses is at a particularly low ebb at present – in April, they tumbled by a staggering £700 million, which is startling, given they currently account for 85% of small business finance, writes James Day, social media manager at Ingenious Britain.

Whilst the government have introduced the Funding for Lending Scheme, injecting £80bn into providing credit-easing measures and thus making finance more accessible and available for small businesses, the above statistic appears to show this is not working.

Whether this is down to the banks, the exposure & clarity the scheme has been given, or the small businesses themselves remains to be seen.

But enough of the doom-and-gloom. There’s a new kid in town, who’s taking the traditional forms of finance and wringing them out to dry.

Ladies and gentlemen – I give you crowdfunding.

Now, I’m sure you’ve heard about the concept before – businesses going to their networks, peers and the public to pitch for investment on an online platform, which these ‘Armchair Dragons’ can then choose whether to invest in or not. What is so brilliant about crowdfunding though is the beginnings of the democratisation of funding. For too long, the banks have been the be-all-and-end-all of small business finance, and they’ve taken advantage, bigstyle (just look at the rail networks for a direct comparison). It’s destabilising the overlymonopolised British funding environment, and judging by the figures above, that can only be a good thing.

Businesses can now play to their strengths: their networks; their business plan; their future ideas; and get their business out there to the general public. So, even if the investment isn’t 100% successful, it’s still a great marketing (and market research) technique.

Ingenious Britain’s MD, Mark Moore asserts: “In the current economic climate, when small businesses are finding it nigh-on impossible to secure the lending they need from the banks to either maintain their business viability or fund expansion, SMEs should be looking at the new landscape – the new business normal – that is opening up for small businesses.

“SMEs need to consider new, innovative approaches to funding that hark back to what commercial finance used to provide.”

One of the greatest things though about crowdfunding is that most platforms require you to be SEIS-ready. Now, the SEIS (Seed Enterprise Investment Scheme) is a fantastic incentive created by the government, designed to encourage investment in early-stage companies by offering tax relief to investors of up to 50% on £100,000/year, as well as Capital Gains Tax (CGT) exemption on any gains they make on shares. How good is that? So, for all those wanting to take their first tentative steps into lending, it massively reduces the risk factor. Peer-to-peer lending has got the catalyst it needs.

And it’s showing no signs of slowing down. Crowdfunding platform Crowdcube released figures last week to indicate it has seen a 500% increase in start-up finance in the first half of 2013, compared to the whole of 2012, whilst there are figures floating around to suggest that in 10 years crowdfunding could provide over £12bn worth of investment to businesses.

At Ingenious Britain, we’re not ones to suggest something without trying it ourselves, so now we need a boost of capital, our first port of call is crowdfunding. We’re looking to the ingenious community to help us realise our potential to become the country’s #1 small business advice and support service. We’re EIS-ready, we’ve got some big plans, and we’d love to share them with as many people as we can (there are also some nice incentives for all those who invest) – spreading the risk, but spreading the reward as well.

Check out our pitch, and show the world that British business is here for the long-haul.

This was posted in Bdaily's Members' News section by Ingenious Britain .