Review of the Alternative Funding Network Seminar

At last week’s Alternative Funding Network Seminar four alternative funding platforms discussed reinventing the business overdraft. The subject is highly topical as over the last couple of years the number of overdrafts for small business customers of major banks has fallen by more than 40%.

Panellists
  • Chaired by Andy Davis, Programme Director for the AFN (& former editor of FT Weekend)
  • James Sherwin-Smith, CEO of Growth Street
  • John Davies, Founder of Just Loans Group
  • Paul Mildenstein, Founder and Executive Director of Liberis
  • Car0line Langron, CEO of Platform Black

Amongst the panelists there was clear unanimity that working capital solutions are an essential tool for UK businesses to manage their cash-flow needs however there was less agreement on what type of overdraft alternative is most appropriate.

This was reflected in the type of solution that was presented by the panellists. On the one hand, the likes of Platform Black and Just Loans respectively offer secured and unsecured short-term financing solutions whereas Liberis offers merchant cash advances as an alternative to bank overdraft facilities. Growth Street probably comes closest to offering a true alternative to a traditional overdraft by offering a revolving credit facility.

AFN panel
The panel for the Future of the Business Overdraft event (Photos: AFN)
So what sets these four alternatives apart and which solution is most appropriate for borrowers?

While there was little to differentiate between the different platforms in terms of processing speed, it was argued that SME borrowers should focus on the following two simple product characteristics when it comes to choosing the appropriate overdraft alternative for their needs:

How long do I need the money for?

Some of the business overdraft alternatives on offer are ‘affordable’ only for a very short time period of time. Over the long run the financing costs of some of these products can be astronomical (in some cases more than 60% on an annual basis). Therefore always look for what the APR equivalent rate is.

Does it actually solve my problem?

Taking out a five year loan when a business only has a seasonal cash-flow shortfall is making a mountain out of a molehill. Similarly, if you are buying assets that take a long time to produce a ROI a 6 month short term finance facility is not the best idea. Therefore it was suggested businesses use cash flow forecasting tools to plan their cash flow needs more accurately.

AFN Event
AFN Event
James Sherwin-Smith, CEO, Growth Street (Photos: AFN)
About the author

Christiaen van Lanschot is chairman of Growth Street's Advisory Board, and a Board observer. Christiaen's extensive experience spans investment banking, asset management and family office advisory. In 2009 he founded and launched a commodity hedge fund manager together with previous colleagues from Banque AIG where he held the position of Managing Director. Christiaen is a serial investor in small businesses and serves as a NED on the Boards of a number of companies including Fetch Inc. who trade as Petplan in the USA.

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