Back to the barter? The future for SME finance
Back in the olden days, and we’re talking a good few centuries ago, you didn’t need startup capital or a bank loan or even any kind of business acumen for a successful enterprise. Provided you had a few goats or sheep to barter with, you could be the goatee-riddled Richard Branson of your local community within six months.
Yet, imagine heading up to a business today and trying to hand them four goats for a Dell laptop, or a sheep and a duckling for a printer.
Not only would Morrissey hunt you down like an animal rights-oriented Terminator, flinging daffodils at you with the speed of bullets and yelling “Meat is murder!” in the voice of a Dalek, but no one would agree to such an odd transaction. Not even a goat enthusiast would be willing to make the trade.
Indeed, the world of business finance has grown more complex nowadays, and it’s leaving many startups out in the cold.
After banks went into meltdown in 2008, they largely shut their doors to smaller or struggling businesses, fearing the risk of more speculative debt.
While this reticence from banks has slowed in the preceding years, SMEs in particular still maintain the impression that banks will turn down their loan application quicker than a lightning bolt attached to a bullet train.
An exciting shift
For this exact reason, the banking sector has shifted its focus dramatically, with smaller companies springing up across the UK to provide numerous alternatives to the banking giants.
An umbrella term consisting of niche sectors including invoice factoring, construction finance, crowdfunding, equity crowdfunding, asset-based lending and much more, this previously small industry is now worth billions.
In a lot of ways, this is largely because the major institutions feel faceless. The naturally stern, aloof feel of banks has hardened businesses against them, and they are, instead, looking for finance companies that understand a sector’s specific requirements.
Let’s have a look at invoice factoring as a prime example. Essentially, it turns bad credit good by allowing you to trade in your invoices for around 80 per cent of their value. The factoring company will then hunt down the unpaid receipts and keep the rest of the cash, essentially creating a win-win situation for both parties.
It’s just one example among many, and it’s keeping a number of businesses afloat.
But the major-league hitter of the pack is crowdfunding, which has grown into an online movement in its own right. In a lot of ways, it’s the online equivalent of a market square, in which businesses advertise their idea on crowdfunding websites and appeal for funding from visitors.
Sites like Kickstarter and Indiegogo have funded billions of dollars for users, allowing creative types and SMEs the chance to gather interest without having to turn to major banks.
And so, while the barter system might be long gone, the world has seen a major push forward in the finance sector – and it’s putting the power back in their hands.
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