Businesses turn to rich backers

Businesses turn to rich backers
By Jonathan Moules
Published: May 18 2009 11:12 | Last updated: May 18 2009 11:12
Frustration with the lack of credit being made available by high street banks is pushing some entrepreneurs to seek loans from wealthy individuals.

Sums of up to £3m are being sought by business owners, who desperately need funds to provide working capital.

Darryl Mattocks, a serial entrepreneur who started one of the UK’s first online retailers, is seeking £1.25m for his latest business, Bye Bye Standby, which sells green products and services.

He is looking at private lending after being turned down by four high street banks for loans backed by the government’s Enterprise Finance Guarantee scheme.

“It is infuriating to hear the government claiming it is supporting small companies and green companies then be treated like this,” he said.

“We had new stock in five weeks ago from our Chinese factories that has completely sold out, but I am struggling to find the money to buy a new batch.”

William Flatau, who last month started First Funding, a brokerage for private debt deals, claims he has already had expressions of interest from more than 900 business owners and hundreds of potential lenders.

“It is really a statement of what is happening out there,” he said. “Banks aren’t lending.”

The funding for private loans is coming in part from business angels, who would otherwise be taking equity stakes in early-stage companies.

Bill Morrow, who co-founded Angel’s Den, the investment network, said there was a fair amount of interest from wealthy individuals who want a less risky alternative to equity investments but he had only seen one or two deals done.

There is a considerable demand for debt from entrepreneurs that use Angel’s Den with 27 per cent using credit cards to fund their businesses, says Morrow.

Simon Campbell is looking to raise £250,000 through a private lender for his fast- growing business Viapost, which enables people to send physical post from their PC.

The company has built a turnover of £5m in just 12 months of trading and the funds are to provide working capital until Viapost breaks even, which Campbell expects to do before the end of the summer.

“It doesn’t make sense to go back to our guys with the equity capital for more funding when we have just three months to break even,” he says.

It remains to be seen, however, whether private debt will become a significant source of finance for growing businesses.

Tracey Ewen, whose invoice financing business IGF has been involved in a couple of deals to date, said: “There are small green shoots but I don’t think we have a forest.” She noted that deals will only be struck once backers are satisfied that the people they are lending to have sound businesses.

“The reality is that there are people who do have money but they haven’t become wealthy private individuals without assessing the risks,” Ewen said.

Copyright The Financial Times Limited 2009