Last month, Hamish introduced us to the changes in banking, and the impact it has had on businesses (and individuals) in rural areas. In part 2, Hamish explores some of the other methods of alternative finance which are out there.
"As I mentioned last time, new, 'alternative' lenders can have limitations when it comes to geography. Not all of these lenders will open their books to the Highlands and Islands. We hope that this will continue to improve as these lenders establish themselves in the marketplace.
The benefit of these alternative lenders is that they can provide speedy solutions when the mainstream lenders are sometimes unable to assist. This can include:
- Selective invoice discounting - as opposed to committing to a bank credit line for an entire debtor book and for twelve months at a time)
- Asset finance - where the asset is deemed as 'unconventional' , the borrower is 'unproven' or where cash requires to be generated from a pre owned asset for a variety of reasons.
- 'Bridging' or 'development' projects - mainly for a 12-18 month period, where the lend is initially too risky for a mainstream lender, but where there is a clear exit.
The latter option can be either through sale of the property, or an eventual re-bank to a lower cost line of credit once the initial 'higher risk' stage has been completed. Whilst the initial interest might be high, it is sometime necessary for you to get your venture up and running.
Crowdfunding & Peer-to-Peer (P2P)
At the 'further reaches ' of the lending spectrum, there are the new online options of crowdfunding and peer to peer loans.
Crowdfunding, by its nature, attracts a lot of press and social media coverage.
Crowdfunding, by its nature, attracts a lot of press and social media coverage. Several North businesses have had outstanding success with crowdfunding, including Glenwyvis Distillery, Macgregors Bar in Inverness, Tens Sunglasses, Dornoch Distillery and Prickly Thistle, who are establishing a tartan manufacturing facility in the Black Isle.
In the right circumstances, crowdfunding can generate significant PR and customer/brand engagement, as well as raising finance for new start businesses who would struggle to qualify for more traditional loans. There are clearly downsides to consider as well, in terms of 'opening up' details of the business to the public via social media, loss of control and managing investors expectations.
P2P lending does involve formal loan repayments
Peer to peer lending is generally less high profile, but has been extremely useful for established businesses such as Cobbs Coffee Company and Dynamic Edge (IT) to raise funds for their expansion plans from a number of private individuals.
Rather than the crowdfunding campaigns which involve a 'soft dividend' such as free or discounted product, P2P lending does involve formal loan repayments - generally over a max 5 year period, at interest rates in the 7-15% range.
Importantly, many of the providers allow for the loan to be repaid early, and without penalty, which can be useful for when the business DOES reach a point where they can access mainstream lending.
Again, like some of the alternative lenders above, this means that P2P is well suited to businesses looking for a short-term boost to get the next phase of your business journey off the ground.
Meet the author
Hamish joined Bank of Scotland in Inverness directly from school in 1986. Following completion of his banking exams in Gairloch, he went on to spend most of the 90s working for the bank in the Central Belt in a variety of Branch, Credit and Business Development roles. He returned home to Inverness in 1999 and went to hold senior positions with both Bank of Scotland and RBS before leaving banking in 2013.
From there, Hamish joined City Financial Aberdeen Ltd as Business Development Consultant during a period of their expansion, where he continued to build up his substantial network across the North of Scotland, whilst also arranging commercial lending and residential mortgages for clients.
Now, at Munro & Noble, Hamish uses his extensive contacts in the lending world - both in mainstream banking as well as many of the niche and alternative sources of finance, both for residential clients and business owners.