The recent warning that banks are no longer making the effort to get to know small- and medium-sized businesses when they apply for a loan, struck a chord with Andrea Linehan.
Linehan, the commercial director with Grid Finance, is keen to stress that Grid’s model is much more business friendly, with staff around the country eager to dig into the fine details of a business hungry for capital.
Banks’ risk appetite when it comes to business lending is conservative, and they look to security first, and work their way back from there, she says.
“Low-risk lending is their business model, and we don’t want them to be doing anything else.
“What we need is to bring in the other options and give businesses choice, and if that means providers coming in who have a higher risk appetite and have the capital providers who are willing to take that risk, then so be it,” Ms Linehan.
Non-bank lenders like Grid have the capacity and willingness to do that, she adds.
It’s hardly surprising that firms like Grid want to claim to be more attractive to borrowers than the traditional banks. But does a higher risk appetite equate to risky lending?
Not so, Linehan says.
“That’s the stigma we’re trying to change,” she says. “There’s rarely acknowledgement of those really strong businesses which might not meet the criteria, but are exceptionally creditworthy.
“The strength of those businesses are in the cash flow. The banks put a lot more emphasis on the security that a business can give.
“They go straight to the security, see what’s there and work backwards. From our perspective, we go straight to the cash flow and look at where the real engine is and look at how strong is that. That’s what we base a large portion of our decision-making on, the cash-flow strength.”
Grid provides loans to Irish businesses via its online marketplace, which matches firms seeking to borrow with individuals seeking to lend money at a return.
Other products include invoice discounting, leasing and short-term cash flow loans, or cash advances, secured against money owed to the borrower from credit and debit card transactions.
Data from the Central Bank for the first half of last year showed that the SME lending market remains highly concentrated, despite continued reduction in the bank concentration of new lending flows.
The market share of the three main lenders in new lending flows at that point was around 82pc.
In the final six months of last year, data suggests that the market has become even more concentrated, with fewer banks holding an ever larger market share. This holds both in terms of outstanding credit and new lending flows.
Linehan said it is a very different picture in other countries, particularly in the US.
“The level of competition over there and the choice for SMEs as to where they can access debt is extensive, not only from a cost perspective, but also a format perspective,” Ms Linehan says. “There’s lots of different debt products to choose from. Depending on the type of business you have and how your cash flow works, the ebb and flow of your trade, there’s generally a debt product that exists over there that will suit.
“Here in Ireland, it’s the vanilla product and here’s the price of it, and if you fall within our remit, it’s a yes, and if you don’t, it’s a no, and that’s where the choice ends.”
Linehan says the businesses that tap into Grid’s products are not being rejected by the banks, but are increasingly choosing Grid as an option rather than going to the more traditional lenders.
“It comes down to businesses saying ‘I have an opportunity, I need capital to be able to fund that opportunity but I need capital quickly’,” she says.
“It’s not about distressed businesses that can’t get capital elsewhere.
“It’s about savvy business owners that are seeing business opportunities out there, and are being strangled by the slow nos and yeses at the bank. And they can’t stay competitive because they can’t move quickly.”
Grid was started by CEO Derek F Butler in 2014. Linehan arrived after returning from a 10-year stint in the Middle East, where she developed commercial and leisure brands for the Omani Government.
“We’re an SME as well. This time last year there were only three of us in the business. We closed an equity round last summer, and we’re now at 22 people.
“We’ve had our own major growth spurt. The market is starting to lift again and the demand for capital is growing because of that and we, thankfully over the last few years, have built out all the ingredients.”
Along with her day job, Ms Linehan is a regular speaker at conferences, summits and universities.
Topics range from financial inclusion, non-bank finance, crowdfunding, sharing economy, social entrepreneurship, fintech, Irish diaspora, minimal viable brands (MVB) and women in business.
Female business owners, she said, were among the most open to the peer-to-peer lending model.
“The first concerns for business owners was that ‘I am about to put my business out in the public ether and say I’m looking for money’. And it was perceived as a weakness, but only from the male perspective. Females didn’t even think that way,” Ms Linehan said.
Males have made up the bulk of Grid’s clientele, though, although she is seeing an increasing number of female entrepreneurs, particularly in the startup realm.
Is she a fan of gender quotas?
“I go back and forth on this one. I don’t think they’ve been around long enough for us to understand the long term impact,” Ms Linehan says.
“It seems like a great idea, but I would be frustrated to sit on a board to see somebody, no matter what the minority is, sitting there and know that they’re not capable of that position but know that they got it because of that.”