Businesses have been forced to get more innovative, and often more collaborative when it comes to raising funds. Unorthodox sources, such as crowdfunding and peer-to-peer lending and the use of business angels, have often temporarily replaced the bank manager. 

Last year, the Confederation of British Industry (CBI) issued a report on alternative funding sources in the UK that forecast “a much more diverse financing landscape in the future”. Research from innovation charity Nesta backs this up; it found that over £1bn of finance was raised via sources such as crowdfunding, peer-to-peer lending and invoice trading last year. This year, that figure is expected to rise to as much as £1.6bn.

But while new, technology-focused businesses have been quick to jump on these new methods of finance, the print world hasn’t quite caught up... At least, not yet.

“While there’s a lot of diverse funding out there, I’m not sure it’s as widespread in print,” confirms BPIF chief executive Kathy Woodward. “It’s definitely not as common as it is with tech-driven start-ups. 

And yet, even though the freeze on lending appears to be thawing, these new methods of raising finance show little sign of going anywhere. Indeed, seven of the key players in this market have come together to launch a web portal, alternativebusinessfunding.co.uk, where businesses can explore their options with just a few clicks of a mouse. And the government is looking into launching similar online platforms of its own

“Firms are going out shopping – they’re not just taking the first deal that comes along,” says Adam Triggs, owner-manager of Cambridgeshire-based 3B Design & Print, a company founded six years ago in the depths of the recession but still managing year-on-year growth.

So it seems printers may still want to consider these alternative routes. Which is why PrintWeek has looked at a few of the key areas shaking up the world of finance and dissected each.

Crowdfunding

What is it? Tight lending conditions and the explosion of social media created the perfect conditions for crowdfunding to thrive. It’s come to prominence as the most ‘buzzy’ method of alternative funding over recent years, and with good reason.

It comes in various flavours. US outfit Kickstarter is the best-known crowdfunding site, and operates on a ‘rewards’ basis – investors are promised gifts rather than actual financial returns in exchange for their investment. However, other crowdfunding sites like UK-based Seedr and Crowdfunder are less well-known. They offer early-stage companies the chance to find investors, who will want a monetary return rather than the promise of a few free t-shirts.

Who’s using it? Primarily, tech-savvy start-ups. It’s also been used to great effect by firms embracing 3D print. For example, Canadian business Rinnovated Design needed to raise C$50,000 (£27,000) to develop a budget home 3D printer and scanner, the Peachy Printer. At the time of writing, its Kickstarter campaign had raised more than C$650,000 from more than 4,000 backers.

Would-be print clients, such as magazine publishers, have also used crowdfunding to raise investment funds. In fact, London-based creative organisation People of Print is doing just that – its Kickstarter campaign to produce Print Isn’t Dead, a quarterly title showcasing the creative use of print, successfully reached its funding target.

What are the benefits? Crowdfunding platforms usually have built-in social media presence, so can generate a lot more hype than a trip to the bank manager’s office. “If you can get 200 backers, it gives you a lot of kudos,” says Stephanie Hussels, senior lecturer in entrepreneurship at Cranfield School of Management.

It can introduce you to potentially loyal customers and show the world what your concept is about very early on. It’s also relatively low-risk, with no financial losses if you or your investors don’t hit your target.

And the drawbacks? 3B Print & Design’s Triggs says that print doesn’t always lend itself well to the crowdfunding model. “Investors want an instant return,” he says. “Print kit is very expensive, and doesn’t usually turn a profit for several years.”

In addition, Kickstarter might work for the hard-up entrepreneur who’s got an idea to sell, but for an established firm, it has a slight whiff of getting the begging bowl out…

Peer-to-peer lending

What is it? Think of peer-to-peer lending as crowdfunding’s slightly worldlier older brother.

When the banks pulled the plug on traditional lending streams, it led to a rapid rise of peer-to-peer lending platforms. Put simply, peer-to-peer lending cuts out the middleman and puts businesses in need of funding in touch with investors.

There are several platforms through which businesses can obtain funding; Thincats, Funding Circle and Zopa are just three.

The lending criteria varies from case to case, and some lending portals require a certain level of turnover for a business to be eligible.

Who’s using it? Unlike crowdfunding, peer-to-peer lending is more for established businesses rather than start-ups and early stages firms. Wiltshire-based printer Customark secured £200,000 via Thincats to fund its acquisition of Oxfordshire-based Padprint Techniques in 2012, after banks turned them down because they wanted a bigger, juicier acquisition. Greg Lerigo, managing director of the firm, says he would recommend peer-to-peer lending “without hesitation”.

What are the benefits? The rates are competitive, and it’s a rather more private affair than going down the Kickstarter route. Investors are keen too – lending to businesses via peer-to-peer platforms often yields better returns than putting money in banks, particularly with interest rates being at historic low levels.

And the drawbacks? It’s been a bit of a ‘Wild West’ situation in the peer-to-peer market until now, but the regulators have finally caught up – the Financial Conduct Authority’s new rules for peer-to-peer lenders came into force on 1 April.

Business angels

What is it? The benevolent business angel, who invests in early-stage growth companies in exchange for a stake in a firm that they believe they can ultimately make money from, has been around since well before the onset of the downturn. However, the lack of available finance from banks has meant that there has been more demand for their assistance. 

Business angels come in various guises –they can range from individuals to groups of investors. And they certainly seem to be doing their bit - the UK Business Angels Association reckons that private investment accounts for around £800m-£1bn of investment in the UK.

Who’s using it? Primarily companies in the early stages and growing quickly. There are plenty of potential angels out there too – various tax breaks are available for investors, so it makes sense for them as well.

What are the advantages? The business angel doesn’t only bring funds – they come with experience, nous and contacts. Depending on your and the angel’s requirements and attitudes they can take a ‘hands-on’ or ‘hands-off’ approach when it comes to helping you grow your company. They could also potentially introduce your business to new sources of finance.

And the drawbacks? Business angels don’t really tend to lend huge amounts of money – it’s usually in the region of £10,000-£100,000. Any larger sums than that require venture capitalists, which often don’t have the same personal interest and have a rather more hard-nosed approach to immediate bottom-line return. They tend to be more interested in proven, established businesses.

It’s also important to get your pitch right. “If you go to too many angels and don’t get your pitch right, people start to talk,” warns Cranfield School of Management’s Hussels.

Invoice or supply-chain finance 

What is it? Unpaid invoices have been a thorn in the side of many businesses since long before the banking crisis, but the past few years have seen the situation go from bad to worse.

Supply chain finance is the process of selling unpaid invoices on at a discount, which are then collected by the buyer in due course. It’s a potentially great way of raising working capital. It involves larger companies at the top of the food chain using the strength of their balance sheet to support their suppliers.

Increasingly, invoice finance is being recognised as a mainstream finance option and the number of people using it is on the up – it’s already well-established in the US, and is growing fast in the UK.

Who’s using it? Largely established firms who need to gain working capital. VDC Group, a London-based CD and DVD reproducer which also deals in printing artwork for music and films, turned to invoice financing in 2012, when it called upon Close Brothers Commercial Finance to help raise funds to expand the business, using a combination of asset-based and invoice finances. 

What are the advantages? Invoice financing is praised for its flexibility and ease.

VDC managing director Sanjay Mohindra says: “There are real benefits to using this process over other funding options as it’s so versatile. We are a seasonal business and this arrangement helps us handle peaks and troughs in the sales cycle as we can release the money that we need quickly.” 

And the drawbacks? It may be growing rapidly, but it’s taken a while for invoice finance to catch on for a reason: “One company – usually the one at the top – has to carry the responsibility for the rest of it,” says Marcus Clifford, partnership development director at the BPIF.

There is also the matter of handing over the invoice book to another body, which will take its cut of what your business is owed.

The Business Growth Fund

What is it? The Business Growth Fund (BGF) was set up in July 2010 by the government’s Business Finance Taskforce as an independent company, and has the backing of five of the UK’s major banking groups – Barclays, HSBC, Lloyds, RBS and Standard Chartered. It typically invests between £2m-£10m for a minority stake, along with a seat on the board.

Who’s using it? The BGF tends to favour companies that are already established and have clear plans for growth. One major printer which has taken advantage of it is York Mailing.

The Yorkshire-based retail print specialist secured £10m of growth capital from the BGF, which enabled it to acquire The Lettershop Group last year.

What are the benefits? It enables businesses to get their hands on the big banks’ money without actually going to the big banks. The BGF will also have a member on the board and provide support with deals and acquisitions. Speaking at the time of The Lettershop Group takeover, York Mailing chief executive Chris Ingram said: “This deal was a significant undertaking for us as a management team, and the financial backing and operational support provided by BGF has been invaluable.”

What about the drawbacks? It’s a bit of an exclusive club.

The BGF only tends to look at companies that already have relatively large turnovers – anything from £5m-£100m – and that are in fairly rude financial health and on an upward trajectory.

Equity investment

What is it? Equity investment hasn’t had as high a profile as crowdfunding or peer-to-peer lending, but the CBI reckons it’s an underused resource. It involves giving up part of the business to an investor – be they a business angel, venture capitalist or even a friend or relative – in return for capital.

“Equity finance is one of the most effective ways for SMEs to access investment capital and there are plenty of investors who take a minority stake,” reckons CBI chief policy director Katya Hall.

Indeed, the CBI believes that while only 3% of UK businesses have used equity investment, three quarters of those who did found it benefited them.

Who’s using it? Printers are already taking advantage of equity finance. Liberty Services, a Croydon-based printer of traffic penalty charge notices raised £280,000 to support a buy-in management buyout with Warrington-based equity firm PHD Equity Partners earlier this year.

What are the benefits? “If you choose wisely you can gain a lot of expertise,” says Cranfield’s Hussels.

An equity investment partner might be the ticket to give your firm a much-needed jolt, because they tend to want a quick and generous return. “Equity investors tend to be slightly more ambitious than a business angel might be,” says Hussels.

What about the drawbacks? If a business angel can offer a cajoling arm around the shoulder, then equity finance can often feel more like a sudden kick up the backside – it’s not for the faint-hearted. Hussels thinks that businesses should think long and hard about this sort of arrangement if they are concerned about a loss of control.

“If you can get equity investment funding, then your business might change very quickly,” she says. “They will want to see your accounts every month, and may also have veto rights on decisions. You have to be open to the direction that your company is going in”

If you plan on getting friends or family involved, then a word of warning: “You should treat them as you would any other business associate,” says Hussels.

Asset-based lending

What is it? Asset-based lending is one of the more ‘traditional’ forms of alternative finance, but it’s come to greater prominence during the years of lean lending. Money is raised by securing against an asset – be that equipment, property or indeed, invoices.

What are the benefits? Accessibility, to cut a long story short. The Asset Based Finance Association reported that July to September last year was a record-breaker, with 43,000 businesses being supported through this sort of lending. 

Triggs at 3B Design & Print recently wanted to buy equipment to help the six-year-old company’s growth plans. “The challenge we’ve had is banks – they’ve been reluctant to lend money,” he says. “Twelve months ago we approached Natwest to lend us money to help us buy equipment – the answer was no.”

However, a year later, after enrolling on a business growth course, a deal was struck with asset-based finance specialist Lombard and Natwest to successfully purchase the equipment.

What are the benefits? Users of asset-based finances point to its flexibility, scalability and relative cost-effectiveness. It can also be a very good way of financing something like a management buyout.

What about the drawbacks? There might well be a big discrepancy between what you and the lender thinks your assets are worth. Also, if the value of the asset decreases over time – if it’s secured against equipment which is beginning to look long in the tooth – the lender will usually look to reduce its exposure.