The Leap 100 April Poll – Climate: Borrowing
The Leap 100 have fallen out of love with British banks.
THE NARRATIVE of growing businesses struggling to find finance is familiar: post-crash, banks won’t lend and cash for expansion can be difficult to access. On the face of it, the experiences of The Leap 100 give the lie to this simplistic tale: 64 per cent say that they haven’t found it difficult to access sufficient funding to finance their growth.
But this isn’t the full story. Many of The Leap 100 do feel that banks have caused problems for small, growing companies – if not for them personally. While 27 per cent said that their bank has become more willing to lend over the past three years, 41 per cent said that it has not.
Over half believe that banks simply aren’t cut out for lending to high-growth businesses. Answers criticised inefficiency, lack of competition within the sector, an unwillingness to understand what fast-growth businesses need, legacy systems, and staff that are inflexible and unhelpful. One respondent summed up some shared concerns around banks’ inability to adapt for fast-growth firms: “the fact we are ‘fast growth’ dictates something new, innovative and unique. The banks struggle with this as often it doesn’t fit within a typical ‘business sector’ (retail, manufacturing etc). They are more comfortable with traditional businesses… they do not understand IP or emerging technologies, and don’t know where to put them.”
For many in The Leap 100, the services and products banks have to offer just aren’t appropriate for their business – over a quarter of respondents have not sought funding from their bank over the past three years.
Capturing the views expressed by several others, one respondent said: “We have relied on the Enterprise Investment Scheme to raise investment. We use our bank for day-to-day transactions in the same way we use BT for phones or the internet. It’s a utility but I would not seek any kind of help or advice from a bank. I don’t see banks as having much expertise, to be honest. Certainly not in my sector.” Some companies, particularly those with more traditional models, still find banks invaluable in accessing credit; and others in The Leap 100 lauded their banks’ attempts to improve services for SMEs – via training and networking events, for example. But Giles Brook of Bear Nibbles says that, despite having received some good support from banks, the products offered aren’t always cost effective or flexible.
It’s important that banks “look at other instruments including convertible debt and equity, or else they are irrelevant to high-growth companies,” says Ruzbeh Bacha of City Falcon. He argues that debt financing “doesn’t work for high-growth companies”. Nearly 20 per cent of The Leap 100 agree that UK businesses are overly fixated on debt financing to fund growth. Jeff Lynn of Seedrs pointed out that equity is a more suitable funding route for fast-growth firms.
A small number heralded peer-to-peer lending and crowdfunding as the way forward for growing businesses. Simon Norris, founder and director of Periscopix, said: “my preference would be to go to someone other than a bank if we needed funding and the amount wasn’t huge (i.e. crowdfunding/peer-to-peer)”.
This article first appeared in City A.M. on Thursday 30 April 2015. You can view the full City AM article here.