“The Route – Finance” is making a conscious effort to thrust itself into the limelight.
How do you define an alternative finance platform/provider? A number of criteria spring to mind: forging direct relationships between funders and fundraisers, having an online presence, funding consumers and small businesses/startups, not being a bank or building society, containing a dynamic marketplace, being flexible and/or speedy, offering high returns to funders, running a “lean” operation, and so on.
But what if you qualify for only a few of the above? Where, if at all, do you slot within the alternative finance spectrum?
It’s a question that’s being asked by an increasing number of companies. The rapid growth of the alternative finance space brings with it the promise of bolstered profile and gaudy valuation. In consequence, boutique funding operations everywhere are attempting to board the high speed train that is the alternative funding sector; from angel syndicates, to private wealth clubs.
One such example is “The Route – Finance”, which has been around for a long time, as a division of “The Route – City wealth club”. Since 2008, The Route has lent close to £50m to UK SMEs. The cash is fronted by around 200 high net worth individual lenders. They allocate capital to the platform – and The Route then allocates those funds to loans in accordance with pre-set criteria, of which return and coverage are the key metrics. But this “platform” is not online. It is simply a pool of capital from which The Route is able to draw and distribute funding. It mirrors its online equivalents within the P2P space, but without any automation.
Central to The Route proposition are the relationships that the platform holds with its lenders. A great deal of care is taken to ensure that the needs of these HNW individuals are catered for, and that they enjoy high quality customer service and easy access to The Route team when required. The platform’s personal touch reaps its own rewards, customer loyalty aside. The majority of the Route’s lenders are experienced financial services professionals, and their expertise will on occasion be utilised in the assessment of a lending opportunity. On a number of occasions a lender has been called in to assist in the due diligence assessment of a small business loan application, and has ended up making an equity investment as well.
Historically, however, the platform’s borrowers arguably haven’t enjoyed quite the same level of attentiveness. We caught up with Bill Fleischmann-Allen for an introduction to The Route concept. Bill was on-boarded by the company for the express purpose of creating the same quality service and sense of community on the borrower half of The Route equation as already exists amongst its lenders.
Those lenders earn in the region of 15% per annum by investing in SME loans. It falls to The Route to ensure that at least 80% of the funds on the platform are deployed at any one time. Borrowers pay upwards of 20% - something they’re reportedly willing to do thanks to the speed and surety of the service.
The Route lends to small businesses for a variety of purposes. The platform primarily offers secured loans, with that security frequently taking the form of land and property.
In sizing up the alternative finance space, specifically the P2P lending segment, Bill identifies both opportunity and threats. The Route is keen to be recognized as an alternative finance provider, but has no plans to morph into an online entity (which could possibly look a little bit like the Assetz Capital platform). Bill recognises that The Route is several years behind on the online platform front, and doesn’t view such a mechanism as essential to the operation of the company. He’s also skeptical about successfully filling loan opportunities with retail money.
But The Route is now looking to scale, after around 7 years of diligent behind-the-scenes work. Pursuing a reputation for excellence in terms of its dealings with borrowers appears to be a core growth strategy. Diversifying its capital sources is another (the idea of some balance sheet capacity has been mooted). Improvements to the company website and SEO work are also being looked at, in order to drive up deal flow.
The overarching plan, however, is to raise the profile of the brand within the setting of alternative finance. Will other companies look to follow suit?
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.