What is MicroFinance?
When a startup starts up, it may not be looking for a huge cheque. Not every startup is looking for that VC-sized, million-pound investment. A young startup may require a sum in the hundreds and thousands, rather than amounts equivocal to Premier League transfer fees. This is where microfinancing enters the fray.
We went along to Startup Britain’s MicroFinancing panel event to hear four experts speak about different ways by which UK startups could boost to their fledgling finances. The panel was chaired by Emma Jones, Founder of Enterprise Nation and cofounder of StartUp Britain.
Russell Gould is from Wonga, the short term loan specialists. He explained that Errol Damelin, Wonga’s CEO, considers the business to be placed in the 'tech' sector, rather than in the 'finance' scene. According to Errol, Wonga’s primary aim is to disrupt the money-lending marketplace.
Russell made it explicit that Wonga’s loans were quick-fixes, not long term finance solutions. Wonga realises that cashflow can cause a lot of small business heartache. That’s why they have engineered short-term loan-packages for startups and SMEs. These small injections of cash can alleviate the pressure of small business financial-management.
However, Russell made it clear that Wonga’s loans are for the short term. It is true that the interest on a Wonga business loan can reach 104% in a calendar year, however if the loan is payed back within a week, the interest will be capped at a more manageable 0.5-2%. Perfect, Russell argues, for an entrepreneur riding a cashflow hump.
Ginny Lunn, from The Prince’s Trust, spoke next. She explained that the Prince’s Trust offers Startup Loans to young people. These loans come hand-in-hand with a business mentor. Another stipulation is that the recipient of the loan must be unemployed.
Ginny explained that the loan, usually around £2,500, comes directly from the Prince’s Trust. This is good news as there are no complicated tie-ins with banks. Ginny offered this stat: 85% of the startups who receive the 85% startup loan succeed. That is a n industry defying percentage!
A heartwarming fact rounded off Ginny’s intro: the Prince’s Trust recently received a charitable donation of £250k from a business that it helped start with a startup loan!
Stu Anderson spoke next, on behalf of Shell Livewire UK. Stu divulged that Shell Livewire’s monthly competitions give away four bundles of £1k to young businesspeople. These competitions are judged mostly by an expert panel. Even though part of the decision-making-process is given-over to a public vote, the judges are the real decision-makers.
It is the expert judges that give the Shell competitions their real prestige. Feedback from five industry giants can’t be sniffed at! Furthermore, due to the involvement of the experts and the leverage of Shell’s brand-name, winners of the £1k bundles are well positioned for PR activity on local and national levels after their win!
Erika explained that it is nigh-on impossible for microbusinesses to successfully pitch for corporate contracts. She preached the benefits of partnering with other organisations in order to ascertain larger contracts.
In addition to Russell, Ginny, Stu, Erika and Emma, the other expert contributor to the day’s proceedings was the audience.
A bone of contention for many thirty-somethings in the audience was this: there are plenty of incentivisation schemes for young people and for the ever-growing silverpreneur community, but there is very little on offer for the inbetweeners who form the vast majority. Do you know of any financial boosters that are open to entrepreneurs of all ages?
Another sticky-wicket was that to be a recipient of the Prince’s Trust’s funding, you have to be unemployed. This was deemed 'unfair' by many entrepreneurs who felt that it is necessary to maintain self-employed status before starting-up. It was argued that without an income, it would be impossible to meet event the most meagre living costs.
Emma Jones also offered another alternative to the four options offered by the representatives from Wonga, TPT, Shell and Prowess 2.0: Credit Cards! If all a business requires is a short-term monetary tonic whilst their finances whir into action, simply using a credit card can provide this fiscal respite.
Thank you again to the excellent Startup Britain team for hosting the event, and to the four expert speakers.