David Prosser: No better time for SMEs to issue own debt

Small Talk

The CBI's new guide to innovative sources of finance for small businesses struggling to raise cash features no fewer than 15 separate alternatives to bank debt; it has already won support from Business Minister Vince Cable, who is desperate to diversify the UKs SME funding ecosystem.

But there is a tacit message in the guide: that small businesses should take responsibility themselves for finding funding where they can.

As the CBI itself points out, one under-utilised potential source of finance is the retail bond sector but there is nothing to prevent small businesses issuing debt for themselves.

In Germany, small companies self-issued bonds worth more than €1.9bn over the year to the end of March, with each one raising an average of €35m (£30m). There is no comparable data for the UK, but the equivalent figure would be pretty close to zero. It's difficult to understand why that should be, given that the small number of British SMEs that have in the past self-issued bonds have had great success.

For example, three years ago, Hotel Chocolat raised £4m of finance after offering investors the opportunity to put up to £4,000 into bonds it issued.

A bond issue by Ecotricity, the alternative energy business, was even more successful – it raised £10m in 2011 by offering investors an annual yield worth 6 per cent (or 6.5 per cent for investors who were also its customers) and was 50 per cent oversubscribed.

Leon, the restaurant chain, managed to pick up £1.5m last year through a similar scheme while the Scottish brewer Brewdog managed to raise £2.2m through a direct appeal to equity investors in 2011. Almost 6,000 subscribed in the business.

The self-issue bond market has the potential to generate much larger sums than have been raised by the handful of issues seen so far. How, though, to kickstart it?

One option would be for the Government to offer the kind of support to investors in small companies' bonds as it extends to investors in their equity. Initiatives such as the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme reward investors who put money into the stock of SMEs.

Why shouldn't investors who put up debt for these businesses also get a bit of encouragement?

Small Businessman of the Week: Adam Landau, director, DeVono Property

I was one of three founders who launched DeVono 10 years ago this October. We'd all worked in smaller property firms and become frustrated with their conflicts of interest – their priority is always the landlord so we felt there was an opportunity for a business that only represented tenants.

In the London market where we operate, even a small firm negotiating a lease over, say, five years, is facing a multi-million pound liability, so it's important they get advice on the transaction.

Many SMEs are getting a raw deal from the London property market. Landlords' agents talk up the lack of availability of space because it's in their interests to do so and clients who don't have representation have no way of challenging agents' claims about who is paying what for comparable property.

Our turnover is now running at £2.5m a year and we've been profitable in every year since we incorporated. We've acquired more offices for companies in London in each of the past six years and we now have a project management operation helping tenants move, and a retail arm that helps clients such as Topps Tiles and Domino's Pizza with multiple sites. We also have close relationships with several firms in Europe.

Competition: Techies can win £1m funding to go solo

Calling young technology entrepreneurs. The organisers of the Digital Shoreditch festival have teamed up with a consortium, including City University, the crowdfunding platform Seedrs and accountants KPMG, to launch Million Pound Startup – a contest that rewards the winner with £1m of investment funding.

The promoters will find a company with the potential to grow into a £100m London-based technology business. The winner will get mentoring support as well as finance. The competition is open to technology businesses with a turnover of less than £1m a year after less than 10 years' trading. Closing date is 29 August. For full details, see millionpoundstartup.com

Start your day with The Independent, sign up for daily news emails
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas