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Sources of funding for growing businesses

THE past year since the 2015 Yorkshire Fastest 50 Awards has seen the continuing growth of new sources of business finance available, such as the peer-to-peer lending industry and the challenger banks, alongside more activity from traditional high street lenders.

As would be expected from a borrower’s perspective, interest rates in the peer-to-peer sector have generally remained higher than those available from more conventional high street funders. However, the peer-to peer sector is often more available to borrowers who may not fit into high street funders’ lending criteria.

Whilst challenger banks have been seen mainly as competitors for consumer lending, a number of operators in the sector are lending to businesses.

There are some privately owned family wealth office lenders which specialise in sectors such as the property sector, as well as some emerging lending organisations with more unconventional origins such as Cambridge and Counties Bank, which is a joint venture between Trinity Hall Cambridge and Cambridgeshire local government pension scheme and offers business loans to SMEs as well as more consumer-led products.

Other potential sources of funding in the market are some opportunity funds which act as lenders as opposed to those who acquire existing assets such as distressed debt to sell on or work out.

These are not funded by individual investors like the peer-to-peer internet platforms but often tap institutional investment sources looking to invest indirectly into the specific markets in which they operate.

For example, there are funds which lend on first ranking security over UK regional property and funds that specifically lend on higher yielding second ranking security often sitting behind mainstream senior lenders who have more restricted loan-to-value criteria.

As well as these property specialist funds there are some lender opportunity funds which lend to trading businesses.

Asset-based lenders have also been fairly active in commercial sectors where fluctuating trading based finance is required.

As well as these newer sources of funding, some of the more conventional bank funders are also more active than they have been in the recent past.

This is reflected in the Bank of England’s Credit Conditions Review, which monitors developments in bank funding and household and corporate credit conditions and which reported a 2.1% rise in lending to businesses in the last three months of 2015.

Whilst we are unlikely to see a return to pre-2008 lending levels, options for growing companies searching for finance to expand are looking up.

* This article first appeared in the Ward Hadaway Yorkshire Fastest 50 2016 supplement. To read the supplement in full, please click here.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

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