Filling the Funding Gap
At Investx, we have identified a funding gap in the market for SME finance, one that is not currently addressed and one that we think we can fill. We will do this by linking together established SME’s who are looking for finance and active investors who are looking to invest in these businesses. Our experience both as SME owners and as SME lending professionals makes us ideally placed to understand the challenges within this market and, importantly, how to address them.
But that’s really the conclusion, so first of all, let us imagine a scenario to illustrate the issues faced.
You are a small business owner, looking to raise finance to fund a new growth opportunity. You need to take on 5 more staff, rent some additional office space to fund the opportunity and possibly need to invest in other infrastructure. Overall, you estimate a spend of about £250k before any revenue comes in.
You’ve kept the business fairly lean and keep about £100k in the bank for rainy day contingencies, so you decide to raise the £250k externally. Where do you go for finance?
Asset Based Lenders?
They are great if you have assets already, be it plant and machinery or properties, but if you have already borrowed against them, or are an asset light business (e.g. service sector), then this avenue is not open to you.
Invoice Finance?
If you have a quality debtor book with a good spread of clients, then this is a possibility, but the reality often is that this working capital is already tied up servicing existing clients. The new opportunity doesn’t have invoices or revenue yet, so is not accessible for invoice finance.
Bank Loans?
Your bank is usually your first port of call for funding, but a(nother) recent change in the bank means that you have a new relationship manager who has a huge portfolio of clients and rarely has the time to devote to anything other than problem solving. You count yourself one of the lucky ones to still have a relationship manager, but don’t have the supportive relationship you enjoyed previously. You approach your RM anyway and they ask you a few questions:
- Bank: “Does the business have any assets we can secure the loan against?” You: “No, we’re not really asset heavy.”
- Bank: “Are you prepared to provide a personal guarantee?” You: “No, not really.” NB: From our experience, this is one of the most emotive points for a business owner. Most have undertaken significant personal sacrifice to build their business and don’t want to risk their family home.
- Bank: “When do you need the money by?” You: “ASAP — we want to get cracking!”
- Bank: “We’ll need to put papers to our credit committee, possibly undertake some external due diligence and go through documentation. This will take about 3 months. Oh and by the way, we can’t lend less than £500k for loans of this type.” You: “OK, I’ll come back to you…”
The Investx team has direct experience of these types of conversations with SME businesses, both as a lender and borrower. We can vouch that for the majority of relationship managers, meeting customers and helping their businesses develop is the best part of the job and they want to come and see you. But, they are stretched so thinly through internal processes, form filling and service issues that they can’t devote the time to a detailed lending process.
Equity Investment?
Most equity funds (either VC’s or PE) are aimed at high growth sectors or businesses, and whilst your business has a track record of year on year growth, the growth forecast is not going to be at a rate which will deliver an investor 2.4x their money over three years. That would be great, but not really your model.
Crowdfunders?
Crowdfunders aim at specific segments of the market, but the majority are either aimed at high growth early stage businesses, or loans into established businesses. Investx is breaking new ground by offering equity funding for established businesses.
So which option do you go for? Each has its pros and cons which can be summarised in the chart below:
We believe that the Investx solution is ideal for those businesses which fall outside of the policy of the banks, equity investors and crowdfunders by creating an equity crowdfunding platform for established SME’s. Our core customer base will be those who fall outside of the appetite of the banks and other mainstream lenders and who have a demonstrable track record. There are thousands of these businesses, spread across towns, industrial estates and business parks, but as yet the majority cannot access active, engaged investors easily. We will change this, so watch this space.
We launched our ICO pre-sale on 1 November 2018, please see our website www.investx.io for how to get involved and for access to our White Paper and Currency Paper. You can also keep up to date through the following channels:
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