Crowdfunding is growing U.K. businesses

Growing businesses in the U.K. are having trouble getting bank loans. Fortunately, crowdfunding is coming to the rescue.

When your business is in its infancy it can be difficult to get a bank loan. But when your growing food brand is in major supermarkets like Tesco and Costco, you're bringing in healthy revenue, and you still can't get a loan, it's time to look for new funding options. That's what United Kingdom-based Righteous did. Wall Street Journal reports that the salad-dressing brand turned to Crowdcube, a crowdfunding platform in the U.K. And Righteous isn't the only company using crowdfunding in the U.K.

Alternative funding options are gaining pace as traditional bank lending remains constrained. Data released in March showed that banks aren't using the cheap cash offered by the Bank of England to lend to households or companies. Banks took down just £13.8 billion in 2012 from the BoE's Funding for Lending Scheme, well short of the £67 billion initially on offer. Outgoing Bank of England Governor Mervyn King has singled out Royal Bank of Scotland for not lending to the real economy.

Fortunately, with social media and these online platforms, there are new ways to get the word out and raise money for a growing business. Crowdcube alone has raised nearly $8 million for businesses and the site has over 30,000 registered investors. In fact, the U.K. is the European leader in crowdfunding with 44 different platforms. Not nearly as many as in the United States -- where there are 191 -- but the U.K. does have one advantage over the U.S.: it doesn't have to use the reward-based model (see Kickstarter) that is required, for now, in the U.S. Instead, people can purchase equity in businesses.

The challenge now for U.K. businesses? Convincing the masses -- not just a single bank -- that their idea will be successful.

'Crowdfunding' Takes Hold in the U.K. [Wall Street Journal]

Photo: Flickr/victoriapeckham

This post was originally published on Smartplanet.com

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