The specific type of short-term, unsecured lending offered by Boost Capital is a relatively new form of finance to the UK, and it’s one that has tended to be eclipsed by some of its glossy peers in the alternative finance space, such as crowdfunders and peer-to-peer platforms. But we are a distinct and important piece in the jigsaw puzzle of alternative funding for small businesses. And companies turn to us because they want precisely what we have to offer.
There’s no doubt businesses in certain sectors are attracted to us because we don’t require security against borrowing. Retail is the second most represented industry among our clients, closely followed by hospitality. These are enterprises that need a flexible type of finance not typically offered elsewhere. Cashflow varies for these firms at different times of year, sometimes due to seasonal fluctuations in business, alternatively because there’s late payment in the supply chain or if a large demand for stock hits the order books. They may well rent their premises and, typically, they haven’t got big pieces of machinery or vehicles to put up against a loan. Unsecured borrowing of our type can be ideal in such a situation.
Automotive firms, wholesalers, and those operating in construction are also among our lending top ten. Like hospitality and retail SMEs, many small businesses in these areas are deemed too risky by the banks. Instead, we look at the company’s health, gauge sales and judge the firm’s ability to generate revenue. That strikes us a better method of assessing suitability to borrow rather than taking a crude one-size-fits-all approach. And because our business loans are designed to be quick in-and-out, paid off over months rather than years, we can hand over funds without the back-up of a company’s collateral. These are further reasons small business owners tell us they like how we operate.
It’s also important to consider why businesses need money in the first place. Our form of lending can work for small business owners looking for cash to grow or those seeking working capital. Let me give you some examples. One hotel in Yorkshire recently borrowed £492,000 from Boost to renovate its existing premises, but also to add extra capacity for guests – part of its ambitions for growth. Such an undertaking inevitably means losing some trade temporarily, so the owners wanted to get their hands on the money needed as quickly as possible to get the work completed with the minimum of disruption. The simplicity of our lending model and our fast turnaround suited them perfectly. But we’ve also recently helped a communications business in Derbyshire that turned to us for a £500,000 loan to help with cashflow issues. Both of these are deals at the higher end of the scale, but a firm is just as likely to ask for £50,000 to buy extra stock, as one wholesaler in Bedfordshire recently did – another instance where time matters and waiting around for months for a loan application to be processed could be the difference between success and failure. My point is that the unsecured, short-term approach can be one that’s appropriate to a number of different scenarios.
As said, the media, in particular, have paid a great deal of attention to the more obviously innovative areas of alternative finance, their heads no doubt turned by the role of the internet in the creation of crowdfunding and P2P platforms. Meanwhile, short-term lenders like us, plus those who provide invoice factoring services and merchant cash advance operators are also working to provide much-needed capital for SMEs with big ambitions. Bridging finance has been around for decades, but how we work has also been revolutionised by technology – and demand. We’ve grown enormously since the economic downturn saw bank lending dry up for SMEs and, increasingly, we’re a collective force to be reckoned with.
But our business doesn’t exist in isolation. Many small businesses will use short-term business loans like ours for one purpose, then turn to one of our peers for other needs. Unsecured lending sits very comfortably alongside other providers, whether it’s leasing and asset finance, invoice factoring or various types of development finance. A leasing agreement can be perfect for a transportation business buying a costly HGV, for example, while one of our loans could be preferable to cover employee wages over a short period when a business has little ready cash. Others in an equivalent position may choose to raise funds against their debtor book, using invoice finance. There’s room for us all and I think more small business owners realise they don’t have to use one source for their every need. Have your mortgage with one provider, an invoice financing deal with another, and loan arrangements elsewhere still.
Ironically, the banks’ reaction to the financial crash is part of what created this greater demand for choice in business finance and the resultant growth in alternative providers for SMEs. Short-term, unsecured lending like that offered by Boost Capital is an important part of this radical new way of funding smaller businesses. Now the alternative finance genie is out of the bottle there’s no way entrepreneurs will allow it to be put back in. And that can only be a good thing for us, our industry more broadly and the small businesses we all serve.