Following the partnership between The Manufacturer and alternative finance specialist ThinCats to make £100m of funding available to UK manufacturers, we examine why investors are increasingly keen to help fund UK SMEs.
“Although we are 10 years on from the financial crisis, its impact is still being felt by many companies who are not receiving the funding that they require from their banks,” states Steven Barr, the managing director at Hennik Edge, The Manufacturer’s expert advisory service.
The problem is particularly acute for growth-focused SMEs who do not have the large amounts of assets against which the banks are more willing to lend.
As a result, many SMEs are not investing in their growth, or are delaying investment until such time as they can fund it themselves.
The wider knock-on effect is that the UK’s productivity and growth is being held back.
A different source of funding
The solution lies in finding a different way to fund SMEs using capital from sources other than the banks. Non-bank capital has already started to flow to SMEs via peer-to-peer business lending platforms.
Funding Circle is the largest of these, with the majority of funding coming from individual investors. The introduction of the Innovative Finance ISA in April 2016 is a further incentive for these investors to earn tax-free returns.
However, because financial advisers and discretionary wealth managers are not yet participating in a significant way, it is unlikely that retail investors, on their own, will be able to provide sufficient capital to fill the funding gap.
This is especially true for SMEs looking for strategic capital of more than £250,000.
The real solution to directing much larger flows of new capital to SMEs is via institutional investors who control billions of pounds of investments. This is an area where ThinCats has specific experience, and has the expertise to facilitate the process.
This article first appeared in the May issue of The Manufacturer magazine. To subscribe, please click here.
What is the ThinCats story?
Founded in 2011, ThinCats was one of the first peer-to-peer business lending platforms. In December 2015, the company was acquired from its founders, which has led to a period of substantial investment by the new owners.
The investment has focused on hiring credit and data analytics specialists and on building a nationwide origination infrastructure to identify those SMEs in need of funding.
Since 2017, ThinCats has seen increasing interest from institutional investors wishing to invest in direct loans to SMEs. The new institutional funding, which runs to hundreds of millions of pounds, means ThinCats can now fund SMEs across the full credit range and with larger loans than was previously possible.
John Mould, CEO at ThinCats explains: “The growing appetite of institutional investors, such as asset managers and pension funds, to provide capital directly for business lending marks a turning point in helping UK SMEs secure the funding that they need.
“For too long the funding gap has acted as a handbrake on the UK economy. UK manufacturing entrepreneurs are globally recognised for their innovation and creativity and ThinCats is excited to be helping them realise their growth ambitions”.
Alternative Finance in action: £1m loan to fund Derby-based management buyout
Riley Automation designs and manufactures a diverse range of linear vibratory and parts handling systems. These machines are used in a wide variety of food, pharmaceutical, confectionery, packaging, electrical and other manufacturing and process industries.
More than 50 years old, Riley is a long-standing operation. The borrowers, Mick Sturgess and Andy Hooley, have been with the business for over 25 years each and have worked in virtually every stage of the process at some point in their careers.
As for dealing with ThinCats, “It all went to plan,” says Mick. “We got the funding we needed, when we needed it. It’s a good option for companies trying to raise cash.”
Discussing where the business goes in the future, Mick says: “It’s a well-established business, and we want to build on that – drawing in new customers and driving growth over the next five to 10 years. We’re also working with people in the robotics industry who require presentation of components to the robot cell.”
Find out more: www.thincats.com/manufacturing
Investment with ThinCats involves making loans to small and medium-sized businesses, and capital is at risk. The principal reason that you may not get all of your money back is if the borrower fails to repay as agreed.
ThinCats is a trading name of Business Loan Network Limited. Registered in England & Wales No. 07248014. VAT Registration Number: GB104044961. Business Loan Network Limited is authorised and regulated by the Financial Conduct Authority and entered on the Financial Services Register with firm registration number 724062. Business Loan Network Limited is not covered by the Financial Services Compensation Scheme.