Block 1: Session 14: New financial channels (Online small business lending…
Block 1: Session 14: New financial channels
Online small business lending (Readings 17 + 18)
Ease of use
Quick turn around on loan decisions
Good customer service
No current customer base - significant resources go on building their portfolio
How can traditional banks compete?
Already have a portfolio
Have depositary assets so don't have to raise high-cost capital
Opportunity for banks and online lendeds to
For banks - More regulation at higher compliance costs
Regulatory overhang may be hurting small business lending
Innovation that is disrupting the small business lending market
Technology which makes it possible for small business to access credit through a more streamlined application process in much quicker timeframes.
New funding alternative in seeding entrepreneurship (See printed article)
Crowdfunding (Reward and equity)
Implications on governance and new ventures
Gift and reward forms of crowdfunding do not provide the inclusion of donors in the ownership and governance of the firms
Peer-to-peer lending offers primarily short-term debt, which is subordinated appropriately; thus, its effect on governance is constrained.
Equity crowdfunding and some accelerators do potentially introduce a large set of new shareholders in the firm. However, shareholders are subdivided into those who do and do not have voting rights, so, depending on the structure, the number of investors with influence may be limited.
Microfinance encounters a different set of ownership and governance considerations. In developing countries, recipients of microfinancing loans are frequently informal, unregistered or partly registered firms, but generally without a formal title. The ownership and governance of informal firms is difficult to influence except through coercion or social pressure when loans are given to groups. Moreover, microfinance organisations often fund entrepreneurs who start their business out of necessity because they lack access to paid employment. If a good job with steady income becomes available, then many entrepreneurs willingly shut their businesses and move on. Control and strategic decision making in such firms is in the hands of individuals running the firm with limited influence from external suppliers of capital.
How does the demand differ between countries.
Family - Are they able to contribute cash first before seeking other forms
How are the banks set up - Do they support SME loans
What is the purpose of the business financially? - Is it to provide a steady lifestyle and contribute socially or is the financing just a stepping-stone.
Raising small amounts of money from lots of people
The entrepenture markets this by posting a small video of the product outlining the product, rewards for donations and aims to raise funds
1 in 5 companies between 2011-2013 who raised equity through crowdfunding have gone bankrupt
Investors loose their money as it is not part of the Financial Services Compensation Scheme.
See Palin printout (Can use for evidence)
See Walters handout (Can use for evidence)