Guest blog: Funding? Don’t bank on it

Back in October 2006, research from Barclays predicted the number of female entrepreneurs would soar as more and more women took the brave step to be their own boss.

Fast forward to 2009 and Barclays’ research showed female-only starts-ups increased by 9 per cent to more than 90,000, compared to 83,000 in the previous year, whilst male-only start-ups showed a slight increase of less than 1 per cent, to 300,000.

For those championing female entrepreneurship, this is good news.   Yet this growth could now be in jeopardy as many start-ups are facing the risk-adverse attitude of banks.

The UK has produced many celebrated female entrepreneurs, including Anita Roddick, Deborah Meaden, Martha Lane Fox and Michelle Mone. However with the banks looking for the smallest, most insignificant reasons not to lend, I find it hard to see where the stars of the future will come from. In fact, a client of ours has personally renamed the credit committees as the ‘Business Prevention Units’.

Recently, a team of young female directors our firm has been working with were looking to set up a new business. They had one of the strongest business plans that we had ever seen.  Despite this, six banks refused to even look at the business plan, declaring they maintain “no appetite for start-ups”.  A seventh cited one reason as the business being “dependent on new clients coming through the door.” I have yet to find a business where this was not the case.

Despite this some may hold out hope following Alistair Darling’s Budget announcement that RBS and Lloyds will be forced to lend an additional £94bn this year with half expected to reach the SME sector. It remains to be seen how effective the newly announced Credit Adjudicator will be in overturning rejected applications.

Yet it still remains unclear what, if any, help will be given to start-ups and in addition the planned increase in national insurance next year is set to provide a further blow to not only start-ups but any business employing staff.

It is clear that the days have definitely passed when banks worked creatively with management teams to identify on what basis they would lend fairly, and have replaced this with the search for any excuse not to. We can only hope that the growing number of women looking to secure funding for business are not put off by facing such rejection from the banks, and are actively seeking alternative forms of funding.

Research in  recent years has shown female entrepreneurs are not frightened to use their personal network to finance their businesses:  a Factors and Discounters Association survey showed businesswomen favour family funding, and a Chamber of Commerce study showed 27% of women compared with 17% of men obtain start-up money from their close family.

However those that do not have personal funds, capital in their property or a wealthy network often resort to offering equity to business angels in return for finance. Many will undertake their own ‘Dragons’ Den’-style offering. This does have a downside as the entrepreneur now has a business partner that is not only entitled to a share of the profits and a say in the business, but will also reduce the amount received on a sale.

Other than loans, there is asset-based lending such as Invoice Discounting or Factoring for working capital finance. This is currently encouraged by the banks due to the lower security requirements as the lending is asset backed. Under this type of facility a bank or asset based lender will provide an agreed per centage of invoices raised immediately charging a rate of interest and service charge. This benefits the business by not having to wait for payment and represents one of the best ways to fund a growing business. In addition unlike an overdraft it is generally not repayable upon demand.  Despite the clear desire of the banks to offer this type of facility to established businesses, it is still difficult to find a lender that will fund a start-up.

I strongly encourage female entrepreneurs not to give up, even if the search for funding initially seems futile. I have worked with many start-up clients who, after encountering initial obstacles to funding, are now major success stories. With the approach of the General Election, my hope is that whichever party wins will revive and incentivise the SME sector. Only through forcing a change in the attitude of banks and lenders will we see the continued rise of female entrepreneurs in this country.

Susan Hutter is a partner in Shelley Stock Hutter LLP, which was established in 1989 and is based in London’s West End.   For more information please visit www.sshllp.com

Tags: Alternative Business Funding, Business Advice, Dragons' Den, Female Entrepreneurs, guest blog, Invoice Discounting, Susan Hutter

Posted by Susan Hutter on Tuesday, March 30th, 2010 at 12:52 pm.

Filed under Ask an Expert, News, SMEs, Starting a Business, Tagged as: , Alternative Business Funding, Business Advice, Dragons' Den, Female Entrepreneurs, guest blog, Invoice Discounting, Susan Hutter.