LFP051 – The SME Overdraft Crisis & the Fintech Solution with James Sherwin-Smith CEO Growth Street

LFP_banner Growth StreetThis week we dive deep into business overdrafts with James Sherwin-Smith CEO of Growth Street.

James Sherwin SmithIf you overdrafts sound dull consider the fact that they are the most commonly used form of financing for SMEs in the UK and that their supply has fallen by 40-50% in the past twelve months :-O

That’s enough to get politicians interested, let alone Fintechers.


Greg Carter one of the founders was working as a VC at Arts Alliance (the firm behind such winners as LoveFilm and Shazam). He found that many of his portfolio companies struggled to open basic overdraft facilities from banks. It was from this experience of pain that the idea for Growth Street emerged as a non-bank alternative for SMEs.

To make a definitional point to an FS guy like myself an overdraft is something which comes from a bank. And indeed banks first did business overdrafts in 1728. Only banks can offer them and thus a non-bank Fintech can’t.

However a Fintech is perfectly able to issue loans and if this is structured as a facility which you can call upon when needed to a pre-agreed limit at a defined cost – well frankly it’ll just be easier to call that an overdraft on the show.

Growth Street offer facilities up to £1/2million to UK limited companies. Applications take 15mins online with a decision in 3 days and only charge a monthly fee when the facility is being used.

Rather different from a bank what?

Amongst other things we discuss:

– London Fintech Startup weekend and James’ takeaways from that

– the importance and power of the notion of ecology in business and FS

– James experience in a health-care startup

– Growth Street as being exceptional in hiring in James as a CEO one year into their journey

– the relevance of kids football to startups

– overdrafts per se compared to lines of credit and revolving credit facilities

– a comparison with prior “banking disintermediation” via capital markets RUFs/SNIFs etc (all types of bond market based note issuance facilities)

– we have only had overdraft stats since the ’08 crisis (!); BoE and BBA stats on overdrafts – falling ~40%/~50% respectively in the past 12mts

– the vast majority of business (according to surveys) want an overdraft but most find it hard to get one

– the reasons behind this collapse in overdrafts – especially around the changes in Basle 3 which requries a bank to hold capital against the limit not the utilisation of facilities (urgh!); hence making overdrafts look twice as expensive as other products (as average utilisation is around 50%)

– “SMEs fall between two stools” in banks – some SMEs still cant even for example get mobile banking

– why SMEs use overdrafts – cash is expensive (“wasted”) and long term loans are expensive (if you end up sitting on expensive cash half the time)

– SME cashflows as in some sense the opposite of consumer cashflow profiles (hence needing short term on demand financing)

– Growth Street’s (B2B) marketplace model

– the challenges of, from the lenders side, an asset with very variable timescales and how Growth Street handle that

– how the model handles the need for liquidity – comparison with the Ratesetter model

– the Provision fund

– the approach to credit; the importance of SME performance data and how that can be leveraged

– the cashflow forecast that is provided back to customers (&relevance for service businesses)

– how this means that there can be a continual measurement of credit (rather than one-off/periodic)

– the possibility of “B”s being on both sides of the B2B equation [cf a savings account you can overdraw?]

– a dive into marketplace models – information provided and virtual cycles [cf vicious cycles often at banks]; marketplaces as “digital mutuals”

– the type of business that are of most relevance to this model

– a great quote from one client “we had money in the bank from Growth Street before we could even get a meeting with a bank”

– plans to share the cashflow forecasting model – anywhere in the world – with both clients and non-clients

– the various benefits of tie-ups with accounting package plugins

– overseas expansion thoughts/parameters

And much much more 🙂

Share and enjoy!