Non-Bank Funding For Young Businesses

Ever since the credit crunch in 2008, lending to businesses has changed. It still seems to many that the banks have clammed up and that they are as precious with their money as a 5 year old who has just opened their Christmas presents haul to find the toy s/he has been nagging their parents about for the last year.

The Government stepped in first to try to fix the system. They created the British Business Bank whose aim is to grant loans of up to £100,000 to new businesses which have been trading for less than 2 years.

Secondly, crowdfunding and peer to peer (P2P) lending saw a large surge in popularity during that time. This is, at least in part, thanks to the internet. These platforms allow business owners to showcase their ideas to the public with the hope of gaining many smaller investments to achieve their financial goals.

Last, there has been a slower growth but growth nonetheless in algorithmic business lending. In this article, we take a look at these businesses, their rates, and what you have to do in order to successfully apply for a loan.

The four main companies

The 4 main companies are called Fleximize, Iwoca, EzBob, and Boost Capital.

Fleximize offers companies who have been trading for a minimum of 6 months the opportunity to borrow up to £200,000. However, they generally only lend up to twice the level of your company’s monthly revenue. Their repayment terms vary between 1 month and 2 years long.

Iwoca requires your company to have at least 12 months of trading behind it before they will consider your company for a loan. They can lend you up to £100,000 for up to 12 months.

EzBob is willing to lend up to £120,000 to companies that have an annual turnover of at least £30,000 and at least 12 months of trading behind them.

Boost Capital has the strictest lending criteria. Your company must have been trading for 2 years (and have all of your accounts available for that time period) for them to consider your application. However, the trade-off is that they can lend up to £500,000 for a period between 4 and 18 months.

How do these companies work?

These loan providers are a part of the “FinTech” wave that has been rising for the last decade. They use algorithms to help their decision making process when it comes to the viability of loans.

These algorithms take into account how much cash moves into and out of your business, your VAT bills, your management accounts, your credit history, and your Companies’ House filings. This data leads to the assignment of a score by the algorithm to your business.  

This score will determine which “risk category” you will be placed in (or whether they will give you a loan at all).

What are their rates like?

Each company has their own rates, typically ranging from 1.5% per month to 8% per month. Previously, we mentioned “Risk Categories”, they will determine how much interest you will have to pay on the loan.

If your company is placed in the lowest risk category then you can expect to pay the 1.5% interest rate. This means that, if you take out a loan for £50,000 for 12 months, you will pay back £55,008 in total.

Higher-risk businesses are charged at 8% meaning that you would pay back £76,000 on a £50,000 12-month loan.

Where does your accountant fit in?

Your accountant has two main roles in helping you to apply for a loan. Firstly, you need their help in gathering all of the information that the loan provider will need. Items like your VAT accounts and all of your profit and loss documentation will need to be presented for consideration.

Secondly, if you are taking out a loan to expand your business (the most common reason that business owners take out loans), then your accountant will be vital in making sure that your new, expanded business will still be viable with increased monthly fixed costs and, of course, the monthly loan repayment.

Secure funding with the help of Panthera

If you are looking for alternative ways to source finance for your business, get in touch with our team of accountants. We can help you set up your business for the best chance of having your application approved.

For more information, call us on 01235 768 561 or drop us an email to enquiries@pantheraaccounting.com – we’ll be back in touch with you shortly.