A SPOTLIGHT ON ALTERNATIVE FINANCE
Frustrated business owners are finding new ways to finance their business aspirations through the growing world of Alternative Finance.
22 | ONSIDE WINTER 2016
Ben Smart had been knocking on high street banks and private equity firms’ doors for months and getting nowhere.
Ben was a qualified solicitor, providing commercial contract advice to, amongst others, waste management and recycling companies. However, he had ambitions to own his own business and researched companies in this field of activity, with good growth prospects and the potential for a management buy-in( MBI). He soon identified a 14-year-old business, Whitham Mills Engineering, which had been primed for a retirement sale, and made the bold move to ditch his lucrative legal career, complete an MBA and move into industry.
“ Even after all these years, the majority of UK SMEs turn to their bank before anyone else.”
The Todmorden-based company provided a range of well-known, efficient and reliable bailing systems used in the recycling industry. It had created a niche market, in high quality bailing modules and low cost linkage manufacturing. However, its sales were limited to segments with few multi-site clients and less emphasis on repeat business. In addition, the company had not pursued contracts with recurring revenues, tendering for public contracts, or working with intermediaries.
Ben completed his business plan and set about sourcing the third party funds he required to support a Buy In Management Buy Out( BIMBO) of the company. After 12-months ' effort Ben’ s bold move into the world of industry looked doomed. He was being turned away by banks and also private equity funders.
Following on from the 2008 banking crisis, a lack of a funding solution is an all-too common challenge to UK SMEs, from start-up funding through to development and expansion capital.
Simon Thorn, Corporate Finance Director of Acceleris Capital, has led many transactions that fall under the definition of Alternative Finance:“ Even after all these years, the majority of UK SMEs turn to their bank before anyone else. Banks will match what a business or its investors put in, but if a business has nothing, this doesn’ t help. Without cash, small businesses simply aren’ t able to grow.”
The ongoing problem of banks being less willing to lend to SMEs, has caused cash flow problems, prevented project development, and stunted growth. In response, businesses have been willing to explore more unconventional sources of funding, in the form of Alternative Finance.