Although uncertainty persists in Brexit, the Bank of England recently announced that UK SME loans reached their highest level in two years in June. Here, DTC Daily talks to Angust Dent (pictured below), ArchOver's CEO, to better understand why investors are rising with SMEs, and open up ways for companies looking to capitalize on this trend.
DTC Daily: Can you explain what ArchOver does?
Angus Dent: ArchOver is a peer-to-peer commercial lending platform. We connect viable companies that need financing with investors who are looking for a better return on their money – both individuals and institutions.
The traditional banking model is flawed – a lot of companies are unable to get financing for growth, and a lot of investor funds sit in accounts at low interest rates. By linking investors directly to successful businesses, both sides of the equation benefit. Lenders get a better return on their money, have a deeper insight into where their money goes, and borrowers get personal facilities rather than just a number on the list.
The key to making this relationship work is the best-in-class credit control. We believe in getting closer and personal with our potential borrowers, getting to know their business in depth, and understanding opportunities and challenges. This is the only way you can make a credible decision about whether they are in a position to take on debt and repay them.
Again, it is a win-win, where borrowers receive a personalized service and a level of relationship not only provided by banks, and lenders can rest assured that they are investing in carefully selected projects.
UK SME lending reached its highest level in two years in June – why British investors are optimistic about SMEs right now?
We should not be surprised to see business lending at its highest level in two years. Good debt is good for business. Pumping money into established companies is the foundation of economic growth – we need to see more of this bullish approach to business as we approach October 31st.Street. We need to see companies control their futures by financing sustainable growth.
Business seems to be trying to do the best in bad shape, which bodes well for the economy. Whether this confidence will continue, we will have to wait and see – a lot has happened in politics since June. However, the key point is that when financiers and borrowers are bold enough to go out and create opportunities, there is still a lot of fighting in the UK SME sector.
With Britain out of the EU, are the results surprising? Do we expect to see lending numbers fall as we approach the EU?
Uncertainty was the status quo for a long time until it became a new uncertainty. These figures show companies trying to do their best to continue their lives as the political class explodes. Until we get any concrete announcements about what happens next in the Brexit, things will continue to be very similar, give a percentage point or take them. Even when these announcements finally happen, the key point is the same – companies need to determine their fate, not just waiting for the government to deliver them.
What are the most popular ways for SMEs looking to receive financing?
Traditionally, you have to say that high street banks are the most popular option. But the question to ask is whether "most popular" necessarily means "best."
The fact is that banks routinely reject loan applications for smaller companies for years now. They may have low-cost capital in the form of shovels, but they don't let British SMEs work on it. Instead, companies need to look beyond the high street and seek alternative financing that treats them with the respect they deserve.
In the years before funding turned digital, you had to accept what your broker gave you. You can now find better alternative options online. Power is shifting from banks – companies need to take advantage of this and get out of the traditional financing envelope.
How can SMEs decide which financing methods are most appropriate for their business?
SMEs need flexible, dedicated funding if they want to do so in the next six months in one piece. The basic thing is to look for dedicated funding to set your circumstances. No two companies are alike, and here the banks' algorithms fall. They judge you by the budget figures – which are important – but they completely miss the broader context of the loan.
What if you're in seasonal work? What if your income flows depend on a significant upfront investment – as in construction? What if you rely on unexpected government funding decisions – as in the railway industry? These considerations do not make the company unstable – quite different from the ideal picture of business that banks seem to have created.
Financing facilities need to take all this into account, and deal with a comprehensive corporate image rather than an purified algorithm. That's what SMEs should look for – someone who is willing to look at it in the eye and recognize it.