Liberis does not have a timeline to allocate the credit line, and will adjust its product to each business or project, offering secured or unsecured loans and revenue-based repayment options.
“You literally pay back as your business pays you and without being penalised, which reduces risk massively, particularly if you’re seasonal or a start-up or going through a period of competitive challenge,” said CEO Paul Mildenstein.
This comes as welcome news after the Bank of England’s latest Trends in Lending report revealed that the stock of lending by banks to small firms has continued its four-year decline, contracting by £0.5 billion in the three months to February 2014.
Mildenstein explained: “One of the issues that the bank industry has is that it’s not good for them to lend to leasehold hospitality businesses. They are required to get capital ratios and when they put it against high-risk businesses with unsecured lending they need to put a lot of money aside for that so they are uncomfortable with it. When you talk to large pub companies you find that the attitude is not easy at all. Banks are not in a position because of their own structure and governance to begin thinking about how they can help the SMEs.”
And although alternative financiers took centre stage when bank limits were tightened, Mildenstein believes this type of financing is here to stay, as businesses are starting to think outside the box when it comes to funding. “British businesspeople recognise the power of the internet to find alternatives. They can actually shop around for a finance product that suits their needs as opposed to just a loan,” he told BigHospitality.
Some businesses are successfully resorting to crowdfunding, with Pizza Rossa raising a record £440,000 in 17 just days and The Clove Club finding the money to open its first permanent venue through CrowdCube. Still only 4 per cent of SMEs think about crowdfunding when looking for financing, while 72 per cent go for the traditional bank route.
Liberis believes the flexibility of repayment and ease of transaction of its product is what will prove most attractive for businesses.
“We tried to keep the good base of a loan and take away the bits that we know they don’t enjoy. That’s about application, decision making, speed and flexibility of repayment. If you ask people who work for themselves what they would appreciate in a loan product it is very simple. They want to get a quick decision, whether yes or no. They also don’t want to have to jump through too many hoops for they regard as not a very consequential amount of money. If people ask for hundreds of thousands of pounds it’s appropriate to do a lot of research, but if they’re asking for £5,000 to £15,000, why treat them as if they were applying for a half a million loan?
“The third thing is that a lot of places require management account, tax information, PNLs and balance sheets. With us, if you’ve got a business and you need a short-term cash advance, as long as we believe that you’ll still be in business in six to nine months we’ll take a view that you’ll be able to pay it back. Because we don’t expect them to have to worry about a two to three-year product, we don’t have to do that underlying underwriting where we try to predict where that business will be in the future,” Mildenstein said.
Liberis has seen a 300% increase in demand from hospitality companies over the last two years requiring funding for new stock, new equipment, refurbishments and to plug seasonal cash flow gaps. Today half of the firm’s business is in hospitality – a tenfold increase in the last three years, which Mildenstain attributes to rising awareness levels. Customers range from small wet-led pubs to large hotels and multi-pub companies.
“One of the things we have to do is try to reach the audience. We know the funding gap in Britain for SMEs is about £15bn, so there’s no shortage of people needing cash. The challenge is to let them know about you,” he added.
This is the first credit line Liberis has decided to allocate exclusively to hospitality businesses, as the firm has observed an uplift in the sector ahead of the World Cup and an expected buoyant summer.