Customers can fund coffee pod

A Cork businessman is looking for lenders to fund a portion of the refurbishment of a coffee pod, but he is not going to the banks, he is asking his customers.

The president of the Cork Business association, Ernest Cantillon, is looking to crowd-source €10,000 of a planned €60,000 fit-out of a coffee pod on the South Mall through the crowd-funding website Linkedfinance.

Linkedfinance works by matching people looking to get a higher return on their savings with businesses looking to borrow.

The CEO of Linkedfinance, Peter O’Mahony, the owner of Dublin’s Laughter Lounge, said that his model allows people to get a better rate of return on their money while letting businesses secure lower interest rates on their borrowing.

“I think it is a huge opportunity and a brilliant idea,” he sai. “The total of SME lending in Ireland is €46bn a year, while there is just under €90bn in household deposits, So, through this people could earn 8% to 10% while they are supporting businesses.”

Mr O’Mahony said Linkedfinance was inundated with lenders but finding good borrowers was the hardest part of the business.

Linkedfinance does the due diligence on the businesses before they are put up on a website where lenders try to outbid each other to offer the most attractive terms for the business.

The lowest rate a business has achieved through the site so far has been just 6.5% on a €15,000 loan. However, the average is 8.2%, which is cheaper by about 4 percentage points than the rates that banks are offering businesses.

Linkedfinance charges businesses an up-front fee of €75 to businesses looking to borrow money, followed by a 2.5% charge on the total borrowed if the business decides to go ahead with the loan.

To date, eight loans have been fully funded.

Although crowdfunding business propositions are new to the Irish market, there have been several successes in the UK, where the business secretary, Vince Cable, has injected £20m (€23.4m) for SME lending into a similar site.

One of the quirks of crowd-funding is that the default rate on loans is much lower. Mr O’Mahony said that evidence from England showed a default rate of just 1%, compared to about 20% in commercial banks.

“You are getting the loan from the small guy who is part of your community so you are not going to let him down,” he said.

Mr Cantillon said that he was delighted that there was a new lending solution coming into the Irish and Cork SME lending market.

“I’m delighted it is happening. If nothing else it is a shot across the boughs of the banks,” said Mr Cantillon. “It might send a signal to the international banks that there is activity in the market and they might locate here.”