Finding the right finance that fits your business

The increasing availability of innovative technology, new business models and strategic partnerships between banks and peer to peer lending platforms, all geared towards making SME finance more accessible, is great news for long term business prosperity. But if you’re a small or medium-sized business looking to fund your next stage of growth, finding the right kind of finance that fits your business is key for success.

Any growing business will, at some stage, consider taking finance to continue to fuel growth. Historically, business seeking finance would approach an appropriate financial institution, such as a bank. But times are changing, and with the rise of innovative technological platforms, alternative finance routes such as peer to peer lending are creating more accessible funding options for the many SMEs seeking fast, affordable finance.

Peer to peer lending versus crowdfunding

Crowdfunding has received much press coverage in recent years. The two primary models of crowdfunding that an SME can access are debt-based crowdfunding (lending), also known as peer to peer lending, or equity crowdfunding. Both peer to peer lending and equity crowdfunding use an online platform to connect businesses seeking finance with potential investors. Each model has advantages and disadvantages, but both can offer a valuable alternative route to finance depending on the company objectives for growth.

Peer to peer lending is based upon investors providing small amounts of capital to a business. In return, they receive monthly repayments plus interest. If your business is established and has a strong credit history, it may be preferable to consider peer to peer lending. This form of crowdfunding enables you to maintain full ownership of your company by borrowing money as opposed to selling shares in your company.

As a business owner, a key decision when considering peer to peer lending is understanding whether you can afford the repayments associated with the finance terms. If your business is established and in a strong position to be able to afford to make regular repayments, then peer to peer lending is a great option to grow your business.

If not, it may be that your finance requirements are better suited to equity crowdfunding. This involves selling part of your business to multiple investors who become shareholders who will share the profit and any loss. The benefit of equity crowdfunding is that experienced investors may bring valuable advice and ideas to the business. The disadvantage is that you will end up owning a smaller share of your business and, in some cases, may have to consult your investors before making certain management decisions. This type of finance is often suited to start-ups as investors share the business risk and provide important capital that can otherwise be hard to find, particularly from conventional institutions.

Finding the right finance to grow your business is a critical decision. It is important for SME owners to identify clear growth objectives which will ultimately determine whether peer to peer lending or equity crowdfunding is right for sustainable business growth.


The article was written by Craig Moore, Beehive Founder & CEO