Equity crowdfunding the silver bullet for consumer companies turned down by banks

Australian equity crowdfunding platform Birchal has revealed a sharp spike in the number of SMEs that have been rejected for a bank loan seeking assistance to raise capital to fund the next stage of growth.

“More than 85% of businesses working with Birchal to raise working capital either were either rejected by a bank or believe they wouldn’t be approved for finance from a bank. Most recently, Birchal has seen a tripling in the number of new enquiries about accessing Equity Crowdfunding - partly down to the recent legislation changes to open Equity CF to Pty Ltd companies.” Birchal co-founder Alan Crabbe says.

“There’s no question that the traditional banking sector has an image problem, which has been compounded by the findings of the 2018 Royal Banking Commission,” Crabbe says.

“We’re hearing time and time again that the banks won’t give even successful and established SMEs a loan, in turn stifling their ability to grow their business.”

“Equity crowdfunding is emerging as the silver bullet for small businesses and brands looking to fund the next level of growth,” Crabbe says.

All of the businesses Birchal has hosted crowdfunding campaigns for have been financially supported by the founders through director or shareholder loans to the business. “Many businesses that come to us aren’t able to access bank finance, so have to resort to personal savings or debt to finance business operations through director or shareholder loans.

“SMEs that have managed to obtain bank finance can usually only access unsecured loans at typically higher interest rates than are available to late stage businesses with assets or property to offer as security,” he says.

Memobottle will not allow itself to be limited by Australian banks

This week, Birchal will help celebrated Australian business, Memobottle raise working capital to fund its next stage of growth.

Launched by entrepreneurs Jonathan Byrt and Jesse Leeworthy, Memobottle gained prominence after its slim reusable drink bottle found its way into the gift bags handed out at the 88th Academy Awards in 2016.

One year prior, the company raised $260,000 from more than 6,000 backers on Kickstarter, smashing its original funding goal by 1700%. A second Kickstarter campaign raised a further $200,000 to cover the costs of expanding the range.

Since inception, memobottle has sold over 300,000 bottles, grossing $6.2m in revenue. The company is fielding increasing demand from around the globe, particularly from the US and Europe both from retailers and corporates wanting to add their logo to the bottle.

But despite phenomenal success, the banks won’t provide funding to successful duo. “The fact is that securing lending is a very difficult and frustrating process,” Byrt says.

“We’ve approached more than six major and smaller banks to secure a small business loan, but we keep getting turned down because we don’t have the collateral to put against the loan. The best we’ve been able to retain is a $50,000 overdraft facility, which is nowhere near enough to fund our international expansion.”

“Our increasing international demand is causing constant stock outages. We start marketing our products, then have to pull back the reins because we can’t produce enough stock to satisfy demand due to cash flow issues,” Byrt says.

Determined to take advantage of new global markets, the duo will launch an equity crowdfunding campaign with Birchal. The pair believe that equity crowdfunding to sell shares in their business could raise between $500,000 and $1 million to fund its rapid international growth.

“We know that our investor community will be invested both financially and emotionally in our journey after this campaign because they’ll have a stake in our business. We plan to enter new markets with the funding and projections show we can get impressive returns for our investors”, says Leeworthy.

RBA concludes SMEs have it tough

Memobottle isn’t alone. The Reserve Bank of Australia recently concluded that small businesses continue to find it challenging to access finance, particularly without providing real estate as security.

RBA’s Small Business Finance Advisory Panel, held in September, found that entrepreneurs find it difficult to borrow more than $100,000 on an unsecured basis to support their day-to-day trading activities and delay expansion until it can be funded from retained profits as a result.

Crabbe says: “We predict further growth in the number of campaigns being launched by SMEs as business owners look for a solution to their funding woes, particularly as equity crowdfunding is better understood by the SME fraternity.”

1. https://www.rba.gov.au/publications/bulletin/2018/sep/pdf/access-to-small-business-finance.pdf