While recent Central Bank figures found that perception by Irish SMEs of the willingness of banks to provide them with credit have improved considerably in the past three years, other surveys show access to finance is still a high concern for about one-third of Irish small businesses.
This is why SMEs are looking beyond their banks for alternative sources of funding.
Among these options is peer-to-peer lending. The largest platform Linked Finance launched in 2013 and rival Grid Finance arriving the following year. Peer-to-peer lending works by matching investors with small businesses in need of loans.
Using their own capital and a priming grant from their Local Enterprise Office, Barry O’Neill and his brothers Padhraig and Brian founded craft brewery O Brother over two years ago.
When the brothers were looking to raise €20,000 to renovate the brewery for visitors, they contacted Linked Finance, having heard positive accounts of peer-to-peer lending from friends. They found “the rates and the levels were better, or comparable to what banks were offering,” Barry O’Neill said.
Describing the process as a sort of “inverted auction”, he said: “You put up your published financials, the purpose of the loan, you decide on the payback period and your desired rate.”
The exposure for O Brother, which supplies about 80 pubs and restaurants across Ireland, the UK, and Italy, appealed to Mr O’Neill.
The lenders “are essentially our target customers”, he said. “They get a good return on their investment, they tell their family and friends, and when they go into a bar they’ll try our beer. It’s a win-win for everybody.”
There are other funding sources. Small businesses can access a range of loans, supports and grants from Enterprise Ireland, Local Enterprise Offices, business innovation programmes through universities, and various State departments.
A while back, food business graduate and mother Veronica Kenneally saw a gap in the market for healthy snacks. Veronica’s Snacks, which include Crunchy Creatures, baked, dinosaur-shaped corn snacks, were already on supermarket shelves around the country, and having self-funded the initial stages, including the “massive costs” of promotion and marketing, she had the opportunity to expand into the UK.
Ms Kenneally was getting frustrated with the 10-week wait for a decision on an application for a bank overdraft when a friend pointed her towards Microfinance Ireland, a government initiative to provide loans to small businesses. She received a loan of €25,000 and was impressed with the fast turnaround.
“The process could not have been simpler”, she said, adding that “it took less than three weeks”. The loan allowed her to continue to grow her business.
Another source is crowdfunding. The idea behind crowdfunding is to pair donors with small businesses, charities or arts events who want to raise funds for a project or campaign. Platforms include Fundit, iDonate, and Seedups.
Art teacher Joanne Condon who runs “upcycling” furniture shop, Kyle Lane, in Clonmel Co Tipperary, considered crowdfunding after a book she had illustrated had a successful campaign on Fundit.
She put on workshops to test demand for her own book. The first five sold out and the feedback convinced Ms Condon that there was a market.
“You price everything so you know how much you need to raise. Then you offer rewards,” Ms Condon said, explaining that rewards, which are scalable, included copies of the book, workshops, and interior design consultations.
Setting her target at €12,000 after factoring in the cost of photography, editing, design, printing, and promotion for 1,000 books, she exceeded that target to raise over €14,000 through 156 funders.
One of the benefits in raising funds this way is the additional marketing that comes with it, she said. “You’ve already a client base and your book is marketed before it’s out.”
Other SMEs look to angel investors for their early investments. The benefits for the business is that the investor can tap know-how that should allow the business to grow.
Richard Barrett and Ross O’Dwyer launched sports news website Pundit Arena, raising €650,000 through investors. Some €60,000 came from investors through the Halo Business Angel Network, an all-island initiative by Enterprise Ireland and InterTrade Ireland.
Mr Barrett said the potential was apparent from the start. “In our infancy, we had a couple of 100,000 users per month and it was growing.” Current users stand at 2.6m per month and 29m on social media.
An investor in the business, Colm Lyon, sold global payments company Realex Payments for €120m in 2015.
The attraction of having such business angels onboard is the experience they bring.
“He built his business from nothing. Having people like him and John Lamphiere has been way more valuable to us than any amount of cash,” Mr Barrett said.