Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Categorized | Banks, Financial

A mission to fund the founders


Posted on October 4, 2016

The face of Queen Elizabeth II is seen on rolled ten, twenty, and fifty pound sterling banknotes in this arranged photograph taken in London, U.K., on Thursday, March 6, 2014. The pound was 0.5 percent from the strongest level in four years against the dollar after the Bank of England announced it would keep interest rates at a record low this month. Photographer: Simon Dawson/Bloomberg©Bloomberg

Paul Haydock was delighted that his new business soon had plenty of customers placing orders. He was making T-shirts and pens for employers to hand out at graduate recruitment fairs, and orders were flooding in. But there was a hitch. “We had £60,000 of invoices out but no cash to fulfil the orders coming in,” he says.

A remedy was offered by the bank, but he and his business partner balked at the cost and bureaucracy. In the nick of time, a big law firm got in touch to ask about payment terms for a £15,000 order. “Can you pay it now?” Mr Haydock asked. It could, it did — and Mr Haydock got on with making T-shirts and pens.

    Lack of cash is an all-too familiar challenge to smaller businesses, from funding the early stages to investing for expansion. James Douglas, who co-founded the Red’s True Barbecue restaurant chain, using his and his business partner’s money, says: “Banks will match what you put in yourself. That doesn’t help if you are starting with nothing.” Banks, on the other hand, point out that they must hold so much risk capital against small business loans that it makes them hard to justify.

    “Without cash, small businesses simply aren’t able to grow,” says Stephen Kelly, chief executive of Sage, the FTSE 100 software business that is still based in Newcastle, where it was started.

    “Only 3 per cent of UK start-ups become midsized, compared with 6 per cent in the US,” he says, citing data from the British Business Bank (BBB), a state-owned lender. “Access to funding is a hugely frustrating perennial issue that only seems to be getting worse. Just 48 per cent of small and medium businesses can now access financing at interest rates below 8 per cent, compared to 60 per cent last year, so it’s getting more expensive for them to borrow.”

    Too many entrepreneurs are using their own life savings to fund their business, he says.

    This will sound familiar to many: despite the experienced entrepreneurs and backers who advise founders not to risk the roof over their head, many still do — either because there is no other way to raise the money, or because they do not want to borrow on the terms they are offered.

    Paul Haydock: ‘I got money because I had a track record’

    The UK government has tried to help with funding. It set up the BBB in 2013 to improve the range and flow of finance available to smaller, privately owned businesses. BBB works with 80 partners, has pumped money through alternative lenders and supports mainstream banks as well as investing directly in businesses itself. Margot James, the small-business minister, recently announced that the bank was setting up a £40m private equity fund to invest in fast-growing companies in an attempt to promote high-growth businesses, dubbed “gazelles”.

    Businesses refused loans by banks can appeal, under new government rules, and can also be referred to other lenders that may be more flexible on what terms they require from the business.

    The big four UK banks — Barclays, HSBC, Lloyds and RBS — along with Standard Chartered, have committed £2.5bn to the Business Growth Fund, set up in 2011, which provides long-term “patient capital” to growing businesses.

    Recently, a new mini-sector of financial technology — or fintech — entrepreneurs has emerged, offering to help smaller businesses win funding. Alternative finance business lending, though growing fast, still accounts for less than 3 per cent of gross lending, according to the BBB. The Peer-to-Peer Finance Association (P2PFA) reported recently that the rate of growth for net lending through P2P platforms slowed for the first time in the second quarter of 2016.

    Luke Lang, co-founder of Crowdcube, the equity funding platform, believes this was a temporary blip caused by the impending June 23 referendum on whether Britain should leave the EU.

    However, Adam Tavener, chairman of Alternative Business Funding, an online portal offering advice on how to win funding, says: “ It’s pretty unfashionable to say it — for the overwhelming majority of SMEs, their bank is still the first place they go for funding.”

    Other figures suggest that fewer companies now want external finance, perhaps a legacy of the financial crash when so many had credit lines pulled without warning. The most recent SME Finance Monitor found that 36 per cent of companies used external finance in the period April to June, down from 44 per cent four years before. Almost half of businesses said they were “permanent non-borrowers” with no intention of raising outside money, says BDRC Continental, which produces the survey.

    Beauhurst, a research house, says the number of investment deals fell 20 per cent in January to June compared with the previous six months. Investment from institutional investors was at its lowest level for three years. Again, this could have been caused by uncertainty over the referendum.

    Conrad Ford, chief executive of Funding Options, an online business loan supermarket, says: “Worryingly, [the fall in investment] is now showing up in alternative finance, with many funders retrenching. It wasn’t meant to be this way — alternative finance was meant to take the slack when the next credit crunch came.”

    Winner of the EY UK Entrepreneur of the Year Awards 2016

    Ambarish Mitra sees the business potential of augmented reality

    Ambarish Mitra during TechCrunch Disrupt London 2015 - Day 2 at Copper Box Arena on December 8, 2015 in London, England. (Photo by John Phillips/Getty Images for TechCrunch)

    His phone app is designed to change the user’s worldview

    Shawbrook, one of the emerging challenger banks, says it is not restricting credit. “Our growth over the next four to five years is not dependent on a growing economy, it is based on winning business that is already out there,” says chief executive Steve Pateman. “If a guy in Hull wanted to buy a new tug boat to work on the offshore wind farms, [the big banks] would just turn him away. We’ll look at the asset and lend against it.”

    The big banks say that they are trying to be more flexible. Barclays has a £150m fund for fast-growing businesses. Richard Heggie, head of high growth and entrepreneurs, says the bank has ad­justed credit criteria so it can lend even if a business is not making a profit. “Rapid scaling-up of a company can put significant pressure on cash flow, so the traditional models of lending may not be relevant,” he notes. In April HSBC set up a £10bn fund designed for smaller businesses, while Santander has also been expanding in this sector.

    As for Mr Haydock, his experiences of too many orders for T-shirts and pens, not enough cash and a cumbersome invoice discounting suggestion from the bank led him to hatch a new business.

    EY Entrepreneur of the Year finalists on fundraising

    Three sets of founders reveal how they raised cash and turned it into a business

    Due Course was set up in 2014 to undertake what he calls “21st century invoice discounting”. It advances money against invoices within minutes, with the help of algorithms. But Due Course deals only with companies that run certain online software packages, such as Xero or QuickBooks, so that it can examine their books, and directors must sign personal guarantees. It typically lends between £5,000 and £15,000 per deal.

    Due Course was started with £175,000 from an angel investor, as well as Mr Haydock’s own money. In September it raised £1.25m in equity funding and £5m of debt. Investors include Alex Chesterman, founder of Zoopla, the property website, Simon Franks, co-founder of Lovefilm, and an investment arm of Rocket Internet in Germany.

    Reflecting on how his early experience led to a new business idea, Mr Haydock says: “I got money because I had a track record. Due Course will help those who don’t.”