VectorCommand, a technology company that provides software to emergency services, has stopped asking banks for a loan.
Instead the Portsmouth based business uses MarketInvoice, a website set up in 2011 that lets companies sell their invoices to investors in return for cash.
Thanks to demand from small, fast-growing companies like VectorCommand, the UK’s first auction-based invoice discounting platform has provided loans of more than £100m to small companies in the UK since it was set up in February 2011.
“Banks are reluctant to lend anyway and we are a software company so we don’t have many assets to borrow against,” said John Hunter, managing director of VectorCommand, which sold an invoice worth £88,000 earlier this year. “But actually I wouldn’t use a bank now anyway. Selling invoices costs less and is a lot more predictable than going to a bank.”
Like Receivablesexchange.com in the US, MarketInvoice is sometimes referred to as an Ebay for invoices. The company runs an online auction that enables multiple lenders to bid for a company’s invoice. Sellers accept a discount and pay a 1.5 per cent fee to the platform, and buyers have the right to collect what is owed on the invoice when it is due.
According to the platform, which launched in February 2011, monthly funding has quintupled during 2013. The biggest single invoice sold to date was worth £1m.
The alternative finance sector is flourishing in the UK, aided by support from the British government, which has earmarked £100m of funds for non-traditional lending.
Through the British Business Bank the government has already started to invest in small businesses using MarketInvoice, and over the course of a year plans to invest £40m.
“Businesses in this country are still struggling to access the finance they need to launch new products, hire more people and enter new markets,” said Anil Stocker, MarketInvoice co-founder. “We started MarketInvoice to provide a fast and flexible alternative to an acute problem faced by hundreds of thousands of SMEs across the UK..”
Peer-to-peer lending websites began as a way for individuals in the UK to lend money to one another but have grown to include platforms that facilitate lending to small businesses. Last year Andy Haldane, head of policy at the Bank of England, suggested that peer to peer lenders could one day replace banks.
Close to £1bn in funding has been generated through crowdfunding and peer to peer websites so far this year according to the think-tank Nesta.
On Friday the City regulator will close its consultation on regulation of the sector, which comes into force in April 2014.
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