The future of SME business finance? - Business Works
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The future of SME business finance?

Simon Dixon, CEO, Recently BW looked at what types of finance are 'fit for the future' to help to kick-start business and the economy. We have seen that banks turn away over half of SMEs, so we asked Simon Dixon, CEO of BankToTheFuture to explain more about crowd-finance and how it can help solve the problem.

When I worked as a trader, there was something unfulfilling about the speculative side of investment banking; I wanted to get into the corporate side because I wanted to get a real feel for the businesses behind the numbers. After about two years in the corporate world, I became fascinated by the CEOs who were taking their businesses public and promptly decided I was on the wrong side of the desk. I wanted to create a company which one day could go public too, so I quit.

The crisis has actually been a bit of a catalyst for our business and as the situation got worse for businesses trying to seek finance, we figured there was a better way of doing things. So we put a team together and launched

The general principles

It’s all about taking the processes that we used to use to make billions for larger companies and stripping down all of the upfront restrictive costs – making it accessible for small businesses to raise smaller sums of money in a number of different ways. For us, it’s all about the movement from institutional finance to people-powered finance. So, rather than borrowing money from a bank, you borrow money from a crowd; rather than pitching angel investors and venture capitalists, you pitch the crowd. If you’re at a very early stage, we have some alternative products you can use to raise finance from the crowd whilst you get yourself more investment-ready and credit-worthy.

the most interesting time in history - ordinary people can become the banks

Today is the most interesting time in history – because not only are we moving towards people-provided finance, it’s also completely democratised the cost to investing. Ordinary people can become the banks and angel investors.

The big vision for BF is that we eventually want to be an entrepreneur’s bank. We’re not a bank at the moment – I want to make that perfectly clear – but we think that things like credit ratings are inferior measures of entrepreneurs on their own; we want to give people the ability to build a ‘social capital score’ rather than a credit score. It builds on a credit score, but it also pools data from the likes of LinkedIn and Facebook - good reputation online and offline, a good reputation in the entrepreneurial community, will benefit your chance to raise finance.

At the moment, we’re the only platform where you can go through the complete funding cycle through to the point where you could look to funding from a venture capitalist, where you can raise equity finance, look to the crowd and maybe if you’re a young business, look to smaller crowdfunding options. We’re also the only platform, as far as I’m aware, to offer support and training during the whole process. We put a lot of time and effort into that – because as I said, our last business was a training company!

We see it that we don’t want you to come to our platform just to raise finance, but to manage the whole of the financial future of your business!

entrepreneurs are the unsung heroes of the world

I believe that entrepreneurs are the unsung heroes of the world. They take more risks than anyone; the government is reliant upon them to create jobs right now. Really, we’re one of the only sustainable sectors and we need to allocate as much finance as we can in a sustainable way. Not everybody deserves finance – it can’t be too easy – you’ve still got to put the effort in to create a solid business. What really upsets me though is the entrepreneurs that are working really hard, that have really good business plans, who just can’t access those funds. That’s what gets our team up in the morning – to support those people who take massive risks to build something, both financial and social, killing their personal finance and personal relationships trying to make a business happen.

Business investment - crowdfunding or otherwise?

You need to be sure that you are pitching the right source of finance. If you’re knocking on the bank’s door and you haven’t got a cash-flow or decent credit rating, then it’s a waste of time. If you’re trying to crowdfund and you haven’t got good connections online and offline then it’s going to be hard for you to raise the finance. If you’re pitching a lifestyle business to venture capitalists, and it’s not going to turn over £100m in the future, then you’re wasting your time.

However, probably the opposite to what I should be saying, is try not to raise finance. I see people trying to get funding simply because they don’t get on the phone and make any sales.

you only need two things: someone to build the product and someone to sell it - the valus of an idea is about £12.99

To get a business started, you only need two things: someone who can build a product, and someone to sell a product. If you can sell a product, please do before you go out and raise finance. I appreciate that a lot of businesses are capital-intensive, but ask yourself: do I really need to raise this finance and can I supplement that through sales? Because ultimately, that’s the best kind of finance.

I see lots of entrepreneurs who are very creative and who have lots of ideas; the value of an idea is about £12.99 on its own: it’s called a book. The value of an execution plan and a team is a lot more, so what I’d encourage you to do is go as far as you can beyond the ‘idea’ so you can command a much greater valuation when it comes to raising finance. That means having a good team around you, bootstrapping as far as you can and building some great products.

What should the government do?

Actually, HMRC is doing some really great things already. There are some really great tax structures in place at the moment like the Seed Enterprise Investment Scheme (SEIS) which is going to attract loads of money to small business – I think it’s a brilliant scheme. I think the government are doing good things at the moment in order to help businesses grow and helping businesses start: we’ve got Start-up Loans and Vince Cable has been supporting the non-bank lending sector.

around 92% of banks' balance sheets does nothing to help the British economy

I think that if you take a snapshot of a bank at the moment, around 92% goes towards mortgages – which are pushing up property prices beyond affordability. There are credit cards that are taking people who have jobs deeper and deeper into debt (normally) and investment banking speculation. So, 92% of the balance sheet is doing nothing to help the British economy.

Essentially the most productive sector is the small- and medium-sized business sector and only 8% of the capital makes its way there. So, anything that could re-distribute that money that would have gone into property, credit cards or speculation and move it towards SMEs that can employ one, two, or three more people is good stuff. I really like a lot of stuff the government’s doing at the moment, but there could be more.

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