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Crowd Funding: An Alternative for SMEs?

In such tough economic times, many small businesses struggle to find funding from the big banks. Lending to SMEs has been reined in, and despite government schemes, many are still finding it hard to find financing. An increasing number are turning to alternative sources – such as crowd funding.

Grass roots funding

Crowd funding originated in the US, and gives benefits to both the investors and businesses. It’s a grass roots level funding, with many individuals putting in small sums of money to help struggling SMEs to increase their cash flow.

This method of funding can offer better interest rates and returns for investors than the banks – the Funding Circle, which allows direct investment in UK businesses from individuals, gave returns ranging from 4-15% on its last 100 loans.

The internet has allowed businesses to reach investors on a far wider scale than before. Sites such as Crowdcube are growing. This website has successfully funded 11 deals in its first year, and attracts 10 to 15 000 visitors per month.

However, the growth of crowd funding is limited by the lack of clear regulation. Investors lack protection, and there’s no universal template on how much information companies have to release. Britain’s Fincancial Services Authority regulator has so far been judging all examples on a case by case basis – if scandals were to arise, it’s likely the platform would collapse relatively quickly.

Other alternatives

If you’re looking for a more reliable and better regulated form of alternative funding, then factoring and invoice discounting could provide good solutions. Both can increase your business’ cash flow, and can release funds to help your business grow.

Factoring can take the responsibility of chasing debts off your shoulders, and selective factoring means you can be flexible in the funds you want to release. Invoice discounting is another versatile service, which your business can use as and when it needs to.

Here at Select Factoring we have a range of different solutions for alternatives to SME business funding.



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