FundingKnight is a peer-to-business lending platform which has funded over £8 million worth of loans to new and growing businesses. We asked Graeme Marshall, its chief executive, to tell us more about the online platform, and what types of businesses could benefit.
Tell us about yourself and why you decided to found FundingKnight.
I’ve been building or starting businesses for over 30 years, mainly in financial services. The businesses that interest me are ones that make a tangible difference to people’s wellbeing. My last business, Sovereign Reversions, was in equity release, where we provided home reversion plans to several thousand asset-rich but cash-poor retired people, giving them access to sufficient cash to remove their financial worries; for many, it really transformed their lives. Through FundingKnight, we can have the same effect, but this time on two sets of people. We provide business owners with a clear and simple route to finance; and we provide savers, who are currently losing money in real terms on their cash savings, with a decent real return on their cash. FundingKnight is based in Southampton, near where I live, which makes a nice change. My last business was in Bedford and in the previous one I was on a regular commute to
I founded FundingKnight and provided its initial funding myself; I also invest in all loans on our platform, so my interests are clearly aligned with our lending community. We have a few outside shareholders, most notably GLI Finance, a listed company which has interests in 16 lending platforms.
What’s the typical profile of a successful business seeking finance from you?
Our borrowers are growing businesses, and we lend to a full spectrum of industries and activities. No sector represents more than 15 per cent of our lending. The top two sectors are property and construction, and manufacturing and engineering. So you can see that we’re helping British manufacturing to prosper again!
We lend to businesses that have been trading for two years or more. A number of the businesses coming to us have been going for many years; the average age of businesses to which we have lent is about 10 years.
What information should a business have prepared before applying for a loan on your platform?
We require the last set of filed accounts (the full version, not the abbreviated one), recent management accounts (both Profit and Loss, and Balance Sheet), a cash flow forecast for the next 12 months, a schedule of all other loans, and bank statements for the last three months.
We always conduct a telephone interview to gain a deeper understanding both of the business and the management team – this is crucial for the business, and because of this our credit evaluations are thoughtful, and heavily weighted towards cash generation and profitability rather than the company’s assets or 'secondary exit'. This means that while much of the information gathered is exactly the same as a bank would gather, the angle from which we approach it is more favourable than that of a bank process, especially in certain sectors – for example, businesses with substantial intangible assets, such as software providers.
I think where we differ from banks is in our thoughtful, relationship-centred approach to borrowers and the fact that we take trouble to understand the drivers behind each business. This is far more important than a historic credit score or a policy on a particular industry sector, which is how the banks and other algorithmic ‘one-size-fits-all’ players do it.
What’s your advice for a small business seeking funding?
Be clear on why you’re borrowing and how you’re going to repay the loan. Be clear and open about what you already owe and how you’re going to service your debt.
What measures could the government introduce to make life easier for new and growing companies?
I think growing companies have a much better chance with P2P lending than new companies do. If business crowdfunding platforms are going to obtain funding for these higher risk early-stage businesses from their lending communities, it would be really helpful if the government could introduce a partial guarantee scheme to reduce the risk to acceptable levels. I think this would provide a massive stimulus to this source of funding for startups.
I’d like to see one particular change in the tax system that would improve lenders’ risk/reward position at little cost to the taxpayer. Realised losses on loans should be allowed to be netted off against interest income – and thus taxed as income rather than capital. Corporate investors can do this already. Individuals should be treated the same.
What do you see as the most important trends in P2P lending?
Diversification of product, giving lenders increasing choice, and businesses' access to specialist markets that have suffered from poor pricing.
Check out the FundingKnight website and follow them on Twitter.
Graeme appeared on a panel discussing alternative finance at a Knowledge Peers event. Knowledge Peers is a business network which gives you practical advice on business issues. Find out about their Alternative Finance Network and getting free membership here.