Tag: sme

TURNING TO YOUR PEERS

Author
Angus Dent
Date

Frustrated about the lack of finance available for their own businesses, Angus Dent and his colleagues created ArchOver, a peer-to-peer lending platform that helps innovative companies to borrow money at affordable rates.

IT’S a situation in which so many entrepreneurs will have found themselves – you’ve come up with a great idea to expand your business, offering a new product or service to your customers, or expanding into a fresh sector or location. All you need now is the money. And that’s where you hit a snag. While banks may be lending more cash than they were during the aftermath of the global financial crisis, that borrowing often comes at a high price, with unaffordable interest rates or unrealistic expectations about guarantees linked to the family home or other personal assets.

Step forward Angus Dent and his fellow founders at London-based ArchOver. While they were running their own businesses, they came up against that very same obstacle – so they decided to do something about it. They created ArchOver, a peer-to-peer (P2P) lending platform that allows firms that have been operating for more than two years to borrow money from lenders using its website. Companies borrow a minimum of £250,000, with interest rates starting at 7.7% a year. Since it launched in the autumn of 2014, ArchOver has helped its lenders to inject more than £65m into British businesses, bringing in more than £2.5m in interest at an average return of 7.3%. In an age when bank savings accounts are paying less than 0.5%, it’s easy to see the attraction for investors who understand the risks as well as the rewards.

“There’s no typical lender using our platform,” explains Dent. “We have a diverse group of individuals – the minimum amount that you can lend is £1,000 per project, so we have some people who simply have £1,000 to lend and then we have some other individuals who have each lent £2m in total.

“Between those two extremes, you have some people who put in £1,000 a month or £5,000 a month and some who put in £1,000 a quarter. What all of them have in common is that they’re investing on exactly the same basis – they all get the same information on the company and they all get exactly the same interest rate, which we believe is very important.

“As well as the individual lenders, we also have a small group of family offices, which tend to lend larger amounts to each project. We also have some funds that also use us to invest.

“Some larger small and medium-sized enterprises (SMEs) use us for treasury management. If they have spare cash on their balance sheet that they don’t need in their own business and want to earn a decent return on it then they can invest it with us.”

Dent and co-founders Brian Basham and Ian Anderson developed ArchOver during 2013 and then secured a £3m investment during the spring of 2014 from Hampden Group, which provides financial and business support services and manages insurance assets and underwriting capacity in excess of £2bn. As ArchOver’s parent company, Hampden has not only invested in the business itself but has also injected cash to the platform, putting its money where its mouth is and lending to other businesses.

The platform’s P2P lending has appealed to a wide variety of businesses. Autostop Leather – which has been making seat covers and floor mats for car companies such as Ford, Lexus and Toyota since 1991 – borrowed £300,000 via the platform to help it develop new products for its customers.

Ergowealth, which is based at Marlow in Buckinghamshire, was founded in 2013 by a group of financial planners. It borrowed £200,000 through ArchOver to fund the expansion of its mortgage advisory service by using its contracted revenues as security.

TLM Technologies – which offers electronic point-of-sale (EPOS), back office and head office systems – secured not one but two loans through ArchOver, injecting a combined £1.1m into the technology business. The first allowed it to replace its previous invoice finance facility with a 12-month, £600,000 loan secured against its accounts receivable, while the second 12-month loan for £500,000 was based on its contracted revenues from software licenses and service maintenance contracts.

“We started with what you might call ordinary manufacturing businesses, with factory units that produce a certain amount of goods each month,” Dent says. “We’ve then worked with a wider range of businesses, from suppliers to the construction industry through to professional services firms, such as accountants and lawyers.

“A little over a year ago, we realised that – if you look at the equity side of things – companies that have contracted, recurring revenues always attract a premium valuation because they’re predictable and stable. But there was no equivalent on the lending side of things – we thought that was a bit daft because you’re putting yourself in a position where you can’t lend to some of the most stable, cash-generative businesses.

“At the core of those businesses there is usually a very good idea, which you could say is intellectual property (IP). Those sorts of companies with strong IP tend to rent that IP in various forms, often as software or as services.

“So, we put together a service called ‘Secured & Assigned’, which takes that contracted, recurring revenue and wraps it up and almost makes it into an annuity type revenue and, in an intangible way, pops that revenue onto the balance sheet and allows us to lend against it. That extended our focus into another whole group of businesses, into software businesses, into serviced office businesses, into maintenance businesses, into wealth management firms.”

Between £10m and £12m of ArchOver’s lending in 2017 was based around that service, demonstrating the high demand for its financial products. Now, the platform’s latest step is allowing it to work even more closely with IP rich companies.

“Working in those areas led us down the road of looking at how we could help those companies fund their continuing investment in IP,” says Dent. “HM Revenue & Customs pays a research and development (R&D) tax credit, but it takes time even after the year-end to pull the numbers together, file the CT600 form to make the claim and then wait for the Revenue to cogitate.

“In the past few months, we’ve come up with a new service called ‘Research & Development Advance’, which – as the name implies – advances money against the R&D claim that’s due to the company. Two of the first companies to use it work in the security sector, with one developing facial recognition software and the other making body scanners for airports.”

Business Finance Industry reacts to Spring Statement 2018

Author
Angus Dent
Date

Despite the increase in the UK’s growth projection, Angus Dent suggests that the lack of an increase in productivity outlook means that SMEs will need to be bolder in their business projects, and seek out alternative finance to help their businesses grow. Read more here.

What Makes The Way ArchOver Lends Unique? – Could Peer-To-Peer Lending Take Your Business To The Next Level?

Author
Angus Dent
Date

With more businesses looking to finance the next chapter in their expansion and meeting dead ends, is it time to consider a different method. Whilst traditional lending can help, more and more business are using Peer-to-Peer lending to ensure that when they need to take the next step of their growth they can do so without the constraints that can come with conventional lending.

This month, Finance Monthly had the privilege of speaking with Angus Dent, CEO and Jerry Gilbert, Commercial Director at strongly growing peer-to-peer (P2P) business lending platform ArchOver. Founded by Angus, together with COO Ian Anderson, in 2014, to date the company has facilitated over £60million in total lending and is fully FCA-authorised. Angus is responsible for developing the overall policy and strategy of the business and ensuring its delivery by the management team. On a day-to-day basis, he is also engaged with borrowers, high-value lenders and strategic partners. Jerry joined ArchOver in September 2017, to provide strategy and structure around ArchOver’s growing commercial activities.

Here they tell us about the optimistic atmosphere surrounding the company at the moment and the significant appetite for the way ArchOver lends.

Typically, what do companies use the finance raised through ArchOver for?

Angus: Our borrowers use the finance raised through our platform for a wide variety of things – no two businesses are alike, after all. They might need a cash injection to fund a bigger office, or to service a major new contract they’ve just won. Or they might be looking to refinance after finding that their existing facility isn’t willing to grow and change with them – we can help them to pay off their existing commitments and secure additional finance to fund their next stage of growth. For some companies, it’s used as day-to-day working capital, freeing up other funds for growth activities.

Jerry: The key point is that SMEs can’t achieve their full potential without the right financing.

For many of the companies that make it out of the start-up phase, financing can be hard to come by.

Many waste months or even years chasing down a single angel investor or debating back and forth with the big banks. SMEs’ great strength lies in their agility, and they need agile funding to match that. The P2P model makes the funding process shorter and simpler, and helps companies get on with the business of growing.

What are the risks of peer-to-peer lending?

Angus: It’s probably best to think about it in terms of the security provided rather than the risks involved. When you’re selecting a peer-to-peer investment or loan to make, you’d naturally want to know about that security that’s provided with it. At ArchOver, when we consider levels of security, we typically look at trade debtors and contracted recurring revenue, both of which are assets that offer good security, since both of them provide cash from which a loan can be repaid. In my opinion, when evaluating security, people would want to look at an asset that is designed to turn into cash – because this means that there’s a flow of cash, which will guarantee the repayment of their loan.

An asset such as property in contrast, is a very liquid asset and would not be as secure, since it could take years to sell a property and there’s not necessarily any cash that flows from it. It’s vital to evaluate how security fits with your objectives and with what you find acceptable.

Jerry: It’s also worth mentioning that ArchOver is quite unusual in looking at those two parts of the business. Many of our competitors in the peer-to-peer space and the traditional lending space will achieve their security from a personal guarantee which is in most instances attached to the company director’s property and has all sorts of connotations.

Angus: This should then make you question whether it provides any security at all – you’re lending to the business. Either the business can afford and service the loan or it can’t. What value does bringing additional assets into play have?

How do you evaluate the ability of a business to fulfil its repayment commitments?

Jerry: Evaluating a business’ ability to fulfil its repayment commitments is not a simple, one-off job. Here at ArchOver, the process covers the entire lifecycle of the borrower, from the moment they are in touch with our Commercial team, to when the loan is fully repaid.

Every prospective borrower must pass through our extensive Credit Analysis before their loan is made available to lenders on the ArchOver platform. The Credit team invests a considerable amount of time – on average four days – to fully review the potential borrower. Should the borrower be approved by the Team, the Credit Committee will review, and make the final decision. Once the loan has funded on the ArchOver platform, we monitor monthly both the asset value and the management accounts against forecast throughout the loan term. We also perform multiple on-site visits before and throughout the loan term. This allows us to get to know the business intimately – its challenges, its strengths and its weaknesses. We can continuously assess the borrower’s position, so we can identify and handle any new risks as (or preferably before) they arise within the borrower’s business. We believe we are the only P2P lender to conduct this kind of monthly monitoring.

Angus: We employ a traditional ‘Five C’ approach: Character, Capital, Capacity, Conditions and Collateral. Understanding a business is a complex, multi-dimensional challenge and we employ both quantitative and qualitative elements when reaching judgments. We have a detailed process we follow to deliver a number of key metrics so that our Credit Committee can take an authoritative decision on which companies should make it onto the platform.

Angus, how was the idea about ArchOver born?

Angus: Through our own experiences as entrepreneurs and directors, we realised how difficult it was to raise working capital in the range of £100,000 to £5 million. We also saw that those with cash were earning next to nothing in interest and that, for those potential investors, security was imperative. Our first thoughts of how to overcome these issues became the founding principles of ArchOver, and so we set out to support UK businesses and UK investors alike in a fair and innovative way.

What makes you different to other P2P lenders?

Jerry: In short, what makes us different is our human-touch. There is always someone available for you to speak to. Whether you are a borrower or a lender, we want to listen and engage with you so we can be as helpful as possible. Providing a personal service is at the heart of what we do.

More specifically, on the borrower side, we seek to facilitate lending in a way that is business-driven, business-focused and business-friendly.

Our loans are fixed amount, meaning there is no unpredictable facility fluctuation, and they are fixed-term and fixed-rate, allowing the borrower to plan ahead. Many of our borrowers have sought an ArchOver loan to help them exit an expensive and time-consuming invoice discounting facility, because we appreciate that a loan should be there to support a business, not to sap its resources. Similarly, we do not take personal guarantees, allowing directors to keep their business separate from their personal life.

Angus: On the lender side, we prioritise security without compromising interest rates. Our Credit Analysis is one of the most thorough in the sector, and we are the only platform to monthly monitor the business and security throughout the loan term. With the exception of our Research

Development Advance lending service, our loans are secured with an all-asset charge over a borrower’s business, and all borrower revenues flow through controlled bank accounts owned by ArchOver. To further underpin security, our lending models leverage the value of the borrowing business’ assets. Our flagship ‘Secured & Insured’ model leverages finance against the company’s Accounts Receivable, where those Accounts Receivable are insured against late or non-payment. Our ‘Secured & Assigned’ model is secured against contracted recurring revenues, where those contracts are assigned to ArchOver.
In a time when interest rates are skimming along the bottom of the graph, we know how important it is to make your money work for you. ArchOver lenders can receive between 6 – 9%p.a., and on average earn a return of 7.3% p.a.

What are the company’s mission and values?

Jerry: Put simply, ArchOver exists to help businesses access the funding they need to grow, and to help investors make a secure, worthwhile return on their money.

We are committed to treating UK businesses and investors fairly. If a business has the assets to sustain borrowing, we want to give them the chance to get up and running quickly. We also believe that investors should be able to secure favourable returns without having to take on unnecessary risk.

We believe in transparency throughout the entire process. Our borrowers are never left in the dark (which is sadly a common occurrence with the banks) and our lenders have access to information sufficient to allow them to make an informed decision on which loans they want to invest in.

Last and most certainly not least, we are helpful, focused and flexible. We are here to help you achieve your business or investment goals.

Have your values changed over the past 4 years?

Angus: No. What has changed is the way in which we do things, not our ethos. We expanded our offering to lenders and borrowers by introducing our ‘Secured & Assigned’ model in January 2017, and have also introduced our ‘Bespoke’ model.

This means we can offer our funding solutions to a greater range of UK businesses, while maintaining security for lenders. For lenders, we are looking to introduce an IFISA early this year, alongside some other services. Watch this space!

Conflicting Information

Author
Angus Dent
Date

It is sometimes difficult to know who to believe when there is conflicting information emanating from two supposedly reputable sources – the pre-Brexit propaganda war immediately springs to mind. In this case, we have the NACFB proclaiming that there is a ‘plethora of lenders’ in the market, while Small Business recently reported that 1,093 small companies are expected to cease trading in January through lack of finance. This sits alongside other, equally alarming statistics such as the fact that 3,633 business failed in Q3 of 2016 and that only 41.4% of UK businesses started in 2010 survived to their fifth birthday.

Of course, some of the companies heading for the drop will not have been up to standard in the first place, but it beggars belief that they should all be in this category. Is it that the owners of these businesses simply don’t know what sources of finance are available and don’t know where to turn? Or is the NACFB mistaken? Either way, there is clearly some kind of information gap.

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We know from other sources that, partly due to the uncertainty surrounding Brexit, SMEs are currently of a mind to borrow less and to hold on to more of their cash; according to the British Bankers Association (BBA), SME lending in Q3 2016 dropped 13% against the same period in 2015. The BBA also revealed that SME deposits have risen by 5% to over £170bn.

The trends suggest fear of what the future may hold. Many SMEs are trapped in a cash flow squeeze brought about by staff who expect to be paid monthly and suppliers who routinely pay on 60 or even 90 day terms. What do you do – turn away business that might give you a 30% profit margin or borrow the working capital which may cost the equivalent of 10%? The logical answer may not be immediately apparent to everyone.

Invoice finance undoubtedly has its place in the market, but it is no panacea. Because of the high costs involved in terms of fees and maintenance, at worst it can be an expensive fix that suits the provider far more than it suits the SME.

Subject to appropriate due diligence processes and appropriate security, P2P loans are available to help with a wide variety of problems, including short term cash flow. They are also available to companies that want to borrow to invest and grow. There is no stigma attached to borrowing money for the right reason and at the right price. There has never been a better time.