Stephen pullinger meets the founder of CrowdFundMe2, a firm helping businesses reap the rewards of crowdfunding

The directors of small and medium sized enterprises (SMEs) need to wake up to crowdfunding as an invaluable way of raising money for growth and new initiatives.

That is the rallying cry of leading expert Justin Grainger, who has set up Bury St Edmunds-based company CrowdFundMe2 to help companies and charities unlock their potential.

The former banker highlighted the 'exponential' UK growth in crowdfunding investment in SMEs, from £400,000 in 2012 to £1.2m in 2013 to nearly £2bn in 2014.

However, he said: 'That still represents less than 2pc of SME lending in the UK. The fact is that when the bank says 'no', too many businesses give up on the plans they have for growth or launching a new product.

'Crowdfunding has massive potential to help the economy grow but still too few company bosses are aware of it and we need to get the message out there. Banks will look at the history of a company to make a funding decision, but a business that struggled during the recession might have a much better management team now.'

The 'crowd' – meaning the public – on the other hand, provided more eyes and greater scrutiny, often helped by local knowledge, he said. Consequently the likelihood of bad debt was lower in crowdfunding than bank lending.

A recent Financial Conduct Authority report on crowdfunding concluded that its light-touch rules released in 2014 were still appropriate, but cautioned about a need to clamp down on marketing that underplayed the risks in equity crowdfunding investment.

Mr Grainger, 46, said the growth of different crowdfunding platforms, allowing the crowd to invest in every imaginable kind of business idea, had been fuelled by distrust of banks and other large institutions.

He added that in a climate where banks were still reluctant to lend to SMEs, the government had encouraged the crowdfunding revolution through British Business Bank support to the popular platform Funding Circle, and the provision of tax incentives to increase the appeal to investors of equity crowdfunding platforms, the fastest growing sector.

Mr Grainger and his team – internet and social media guru David Angell, tech start-up specialist and author Andrew Walker and business finance and strategy expert Claire Nevison – set out to guide companies and charities through every stage of the process.

He explained that 'pre-pitch' work focused on enhancing the company's use of social media 'to effectively communicate with people in the crowd without breaking the bank'.

They then worked on creating a 'compelling story' for the funding campaign that potential investors could view on whichever platform had been chosen. The project would normally have between 30 and 45 days on the platform to reach its fundraising target.

Mr Grainger said the importance of developing a pitch with immediate impact was underlined by statistics that revealed if you reached 30pc of your target in seven to 10 days you had an 80pc chance of ultimate success.

He said: 'Along with compelling editorial, having a video is really important, giving you an 85pc higher chance of success than without one.'

Clients supported by CrowdFundMe2 range from Chris Peacock, who has developed HandSteady mugs for people with tremors and wants to use crowdfunding to raise money to place a large order with a manufacturer, to renewable energy developer Solar 350 which ran a successful crowdfunding campaign to fund a solar project in Chile.

In Norwich, the company is currently looking at crowdfunding options to fund the expansion of Lord Somerleyton's takeaway business Hot Chip.

Mr Grainger said this case underlined the fact crowdfunding was applicable to a wide range of businesses.

'Many people still think it is a route just for tech start-ups,' he said. 'In fact it was often the best practical way for small businesses to expand to the next level.'

Are you financing a new venture through crowd-funding? Contact stephen.pullinger@archant.co.uk.