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After Coronavirus It's time to embrace equity investment

Posted 1 years ago

After Coronavirus It's time to embrace equity investment
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Before the outbreak of coronavirus, we were beginning to see the rise of alternative finance sources, with emphasis being taken away from traditional banking. By and large, this was driven by alternative lenders using digital technology as a way to raise awareness among business owners. 

With SMEs facing a funding gap of just over $5 trillion, you would have thought in this current pandemic, that there would have been an immediate trend to use alternative sources of finance. However, this couldn’t be further from the truth. 

As a result of coronavirus, SMEs have been burdened with huge amounts of debt as a result of the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS), schemes which were introduced by the government as a means to keep businesses liquid during lockdown. 

But now, as the UK looks ahead to its economic recovery, companies with plans for future growth have the perfect opportunity to look for alternative sources of funding to support their ambitions in a post-Covid society. Indeed, this could provide the perfect opportunity for alternative lenders to recover, many of whom have faced significant struggles having to adapt to the new financial climate. 

As the alternative finance marketplace, we have seen a number of SMEs turning to alternative sources of investment, specifically equity. Whereas once smaller companies may have feared relinquishing control to private investors, they may well now view them as partners which can provide both finance, network and expertise to accelerate growth.

Accessing finance via traditional lenders can be restrictive and time-consuming. More often than not, SMEs find banks do not share their assessments of risk and growth potential. The end result is either lending which doesn’t fully finance an SME’s plans or lending that arrives too late to realise the opportunity. Indeed, this has been brought into sharp focus with the delivery of CBILS and BBLS, in which many businesses have missed out on critical funding due to delays with banks. 

This has strengthened the belief of some SMEs that traditional lending is risk-averse and will be near-on impossible to secure a sizable loan to expand the business in a recession. While many long established private businesses have inkling that this is an option available to them, they do not understand the intricacies of equity investment. We have often heard the phrase “vulture capitalists”, as opposed to “venture capitalists” This in-built fear suggests a significant misunderstanding of venture capital and its purpose.

Private equity can bring with its whole range of advantages, including: new connections, ways of thinking and problem solving and management incentives. The funding can be structured to provide companies with a more dynamic means of finance that’s better suited to realising their goals. 

CEO of Nextfin, Sacha Bright said: “Small business owners need to get over their fear of accepting private investment. If we are able to revitalise our economy, established businesses will need to rejuvenate their organisations as if they were a startup and have an open mind when it comes to funding. 

“Private equity offers businesses flexibility, and more importantly the support and advice that traditional banks cannot offer.

A key way of allowing businesses to do just that is for the government to support this by increasing the S/EIS investment allowances to aid in the recovery of this rejuvenation.” 

Authors: Oliver Murphy & Sacha Bright


To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.

Tagged: coronavirus eis equity investment alternative finance

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