The UK alternative finance sector has been growing significantly for some years now. A joint report by Nesta and the University of Cambridge showed growth of 161% between 2013 and 2014 – leading to a total market value of £1.74bn.
The latest name to join the burgeoning industry is Capify – itself the result of a giant merger between five of CEO David Goldin’s former businesses. They are:
- United Kapital, founded in 2008 and operating in the UK, with headquarters in Greater Manchester, England
- Capiota, launched in 2013, which acts as United Kapital’s business loan product provider, with headquarters in Greater Manchester, England
- AmeriMerchant, founded in 2002 and operating in the US, with New York City headquarters
- AUSvance, founded in 2008 and operating in Australia, with headquarters in Parramatta, New South Wales
- True North Capital, founded in 2007 and operating in Canada, with headquarters in Toronto
The USP of the new firm is that it is aimed at small businesses who make the majority of their sales through debit and credit card sales; tailoring their offering accordingly.
These businesses can sell a share of future credit card and debit card sales for a merchant cash advance (between £3,500 and £500,000). Repayments are made on an agreed fixed percentage of each credit or debit card transaction the business makes. MD Tony Pegg told Growth Business the model attempts to acknowledge and lessen the toll that available cash issues take on small businesses.
>See also: Mind the SME funding gap
“Traditionally the bank loan was the only option available to many SMEs,” he said. “But that has always been pretty inflexible. What we offer is a daily remittance for repayments, which we think is unique in the marketplace. We are aware of some others offering a weekly remittance but no one else offering the same as us.”
Understandably, Pegg pinpoints the financial crisis as moment some of the relationships and trust between the traditional banking institutions and SMEs broke down. But out of this difficult time came a positive for small businesses as the alternative lending sector started to offer a genuine alternative.
“During that period SMEs were really starting to look around and asking what else was out there. And out of that came the rise of the alternative finance sector. It started to grow purely because of the firms’ speed and access to market. And I think now that education piece is going to filter through to business owners that they don’t need to rely on capital to borrow money to improve their business any more,” he said.
There’s no doubt that the alternative finance industry has been a godsend to SMEs. Like many of the best ideas it was born out of necessity; this time the financial crash and lack of available credit. But if things continue as they are it might be a long-term gain for small businesses who simply can’t wait for large banks to catch up with their quickly evolving financial needs.