A YOUNG entrepreneur from Leeds is launching a new crowdfunding website to offer better returns to savers and help small businesses access desperately needed finance.
The fund-raising has valued the pre-revenue company at more than £2.5m, he told the Yorkshire Post.
Mr Rajkumar has enlisted the help of well-known figures from the regional business community, including former Yorkshire Bank director Gary Lumby and Yorkshire IoD director Kenton Robbins, to develop the business.
Mr Rajkumar said: “Essentially it’s been really difficult for businesses to get funding from the banks, which have withdrawn from the market.
“A lot more of the growth globally is happening in the Far East and Africa so there is not much incentive to lend to businesses in the UK.
“At the same time, a lot of savers and lenders do have the appetite to earn a better return. The website is a place for these people to get together and agree debt-based deals.”
He said the “doors are open” for borrowing applications from businesses with ambitions to grow.
“We are actively looking for creditworthy borrowers seeking capital from stakeholders who will be interested in the success of their business as well as looking for a return,” said Mr Rajkumar.
The platform will begin by supporting businesses in Yorkshire and then move further afield.
The Leeds University graduate said that “positive externalities” can arise from deals when lending is local.
For example, a lender who makes a loan to a local restaurant is more inclined to visit the restaurant, which will help to ensure its success. Alternatively, a lender who loans money to a dry-cleaning firm is more likely to use its services, said Mr Rajkumar.
Borrowers register online and must pass through identity and credit checks.
Next, they submit their borrowing requirements and state what the money is for.
The information is checked and published online for registered lenders to assess.
Borrowers will use the website to “tell their story”, said Mr Rajkumar.
Rebuilding Society so far has amassed £40,000 worth of commitments from lenders.
The website, www.rebuildingsociety.com, is still in beta mode ahead of a marketing push next month.
Julian Wells, the former marketing director at financial services outsourcing firm HML, is helping to promote the business.
He is meeting with independent financial advisers to encourage them to promote Rebuilding Society to their clients.
IFAs will receive a commission. “It’s in their interest to help set up deals,” said Mr Rajkumar.
As with all investments, there is the chance that the lender will lose his or her money.
Mr Rajkumar said lenders choose how much they want to lend, although they are encouraged not to lend more than five per cent of their committed capital to any one business. “The idea is you lend a small amount of money across a lot of businesses,” he said.
A lender can make loans of between £10 and £2,000. The average interest rate earned reflects the level of risk.
Lenders can use an application called Bidpal to configure their risk appetite if they do not want to manage their investments proactively.
Businesses can borrow a minimum of £2,000 and a maximum of £50,000. Rebuilding Society plans to raise the ceiling for lending as the business progresses.
The website will have a separate, clearly-marked section for high-risk loans.
The Financial Services Authority does not regulate crowdfunding lenders.
In general guidance issued on Friday, the City watchdog said: “We want it to be clear that investors in a crowdfund have little or no protection if the business or project fails, and that they will probably lose all their investment if it does.”
Mr Wells said peer-to-peer lending has the potential to become a widely accepted way of managing money.
He added that Rebuilding Society can help rebuild trust in financial services.
The 37-year-old marketing expert said: “A lot of great marketing comes out of doing the right thing at the right time.
“Rebuilding Society feels like the right thing at the right time.”