So, you’re ready to start or grow a business, but where do you go toget the money to invest? For most of my life the answer was simple. You would phone up and book a meeting with your bank manager. They would sit you down, offer you a cup of tea – if you were lucky – and ask you to set out a business plan.
Bank managers used to know everyone and did not always make decisions based on cold, hard sums – trust, personality and relationships came into it. Then the rise of algorithms replaced expert judgment with a one-size-fits-all approach that left many budding entrepreneurs frustrated. Now technology, often blamed for eroding the personal interaction, has brought it back to business lending.
Crowdfunding has been sending shockwaves through the finance industry for years. People fund ventures on platforms like Kickstarter not just because they make good business sense, but because they are interesting, amusing or will do some good in the world. Now equity crowdfunding on platforms like Crowdcube, where people get shares in a business for investing at an early stage, is growing by around 80 per cent every year. Pitches to potential investors are highly personal, setting out their visions and values as well as bottom lines.
This also shows we are shifting away from the idea that getting money for your business means getting into debt. Why get a loan from a bank and pay interest when you could offer an investor who knows the ropes a stake in your business in return for funding? This has long been a popular route to finance for Silicon Valley entrepreneurs – and we have lagged behind the US. It might not seem very British to give a part of your company away, but holding on to it all and losing out as a result is not the route to success. Everyone’s been given the shot to be in their own version of Dragon’s Den.
The problem with the bank manager was that you stood less of a chance of getting what you wanted if you grew up on the wrong street or lived on the wrong estate. One of the reasons government launched the start-up loans
programme was to give people who couldn’t get a loan from a bank the chance to follow their dream of starting a business.
We’ve now given out almost 40,000 loans through the British Business Bank, with around a quarter of these going to people previously on unemployment benefit through referral from the New Enterprise Allowance scheme. Alternative funding sources have the potential to open these doors in a similar way, putting an end to postcode prejudice by connecting people with great ideas from all over the country with investors willing to back them.
We are also building on our rich history of innovation to boost the UK’s Fintech sector – already worth more than £6.5bn – and compete with the likes of California, New York and Singapore. One of our main jobs is to make sure the big banks work together with the new players so that consumers, businesses and entrepreneurs reap the rewards.
A good example of this is the work going in to APIs – or application programme interfaces – which allows for the quick and safe transfer of data between different platforms.
Most of us use them when signing into websites using a Facebook profile or getting an insurance quote from a comparison site. But when applied to finance they can transform the way we handle money.
Of course, safety and security is vital for any new finance product and the FCA has a dedicated team to make sure regulation matches the speed at which the Fintech sector innovates. We need to give confidence and certainty to the market, while allowing the ecosystem to grow and thrive. Most of all we need to keep looking outward and to the future, to overcome any challenges that lie ahead.
I was lucky enough to join some new Fintech businesses on a trip to Asia last year. What struck me most was how dynamic and comfortable they were in unfamiliar surroundings, interacting with people from different cultures, sharing and collaborating. Business brings people together from all walks of life and from every corner of the globe. We must embrace fresh thinking, innovation and disruptive technologies, and harness the talent that can lead to the next Airbnb or Skyscanner. And as a country, we must keep our doors open to the entrepreneurs with the great ideas, who create jobs and growth, because business is a universal language. Anna Soubry is Minister of State for Small Business, Industry and Enterprise and is the MP for Broxtowe.
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