Horror stories about profitable small companies being stymied by an inability to raise finance from mainstream lenders are commonplace, and predictably there has been a response by new lenders to fill the gap between what traditional lenders seem prepared to lend and what small business need to borrow.
There are other considerations, too. Many small companies and entrepreneurs are fed up with the shabby way that they have been treated by the big lenders who are busy trimming balances sheets by unwinding dodgy loans as quickly as possible, driven by more onerous capital requirements.
One company hoping to fill the funding gap is Bluehone Secured Assets, which wants to raise around £40m when its shares are admitted to the Alternative Investment Market (Aim) at the end of April. The plan is quite straightforward. Companies meeting the required standards will be profitable and cash generative, and any loans will be secured against assets owned by the borrower. Interest rates will be fixed at 4 per cent above the London Interbank Offered Rate (Libor), starting at a minimum of 8.5 per cent. And from interest payments and other fee-related revenue, Bluehone has a target cash yield for its shareholders of 6 per cent a year. Around 15 to 20 companies will be targeted in the first year, and additional fundraisings will finance further loans.
Both companies see themselves in the traditional role of merchant banks, and both have reported significant interest from small businesses keen to have a financial partner on board who takes an interest in the business - not a stake - and provides advice and guidance where needed. And with mainstream lenders busy solving their own problems, this sort of financing stream could grow significantly.