Mini-bond is one way of getting luxury car business up to speed
In a business that defies traditional lending logic, bypassing the banks can make sense
It’s not easy trying to find finance to get your company into top gear. Alex Prindiville fears that his efforts to borrow the money he needs to grow his luxury car dealership may have taken years off his life.
“When I started I had hair and I was 7ft tall. Now I’m bald and 5ft,” he jokes. His tribulations are not, however, the result of an application for a bank loan getting stuck for months on end. Instead, the frustration is self-inflicted, after Mr Prindiville took his fundraising efforts into his own hands.
He has put together a “mini-bond” offer, whereby the company, Prindiville, intends to borrow directly from its customers. It is offering returns of 7.5 per cent. Interest is due every six months, with capital to be returned after five years.
Mr Prindiville hopes to have raised £12 million from clients by the time the offer closes in April, with the money intended to allow the London-based dealer to buy some of the world’s most expensive sports cars. “The amount of hoops, compliance and legalities you’ve got to go through to get this done is just mind boggling,” he says.
He decided on the unconventional approach to financing his business after growing frustrated at losing trade through lack of working capital. “Our problem is not sourcing cars or selling cars. Our problem is funding. The demand is outstripping what I can keep up with. We need investment into the business. I am turning business away because I haven’t got the capital.”
Mr Prindiville, 42, has been working with cars since he was 17. “As a child, I spent my time tinkering with bikes and engines,” he says. He started the company nine years ago. It began as a manufacturer of modifications for sports cars before becoming a broker of resales of luxury and classic vehicles. “If you want something you can’t find, you come to me. My black book is amazing. It has to be or I wouldn’t be able to do this.”
If Mr Prindiville arranges a sale for a customer, the buyer may want to part-exchange vehicles to finance the deal. But the company has found that it often hasn’t had enough capital to purchase those cars to complete the transaction. With Prindiville also wanting to purchase more vehicles itself, rather than simply acting as a broker, the need for finance was clear.
In Mr Prindiville’s world, the equivalent of a runaround starts at £50,000. Even a Bugatti Veyron, said to be the world’s fastest road-legal production car, isn’t at the top of the price range. “The Veyrons were going for £1 million, they’re back at about £700,000 now. Something like a McLaren P1 is being sold at £1.7 million.”
It’s easy to see why his working capital demands are on a different scale from the average small company. “A couple of million pounds doesn’t go very far. We need tens of millions really. We always need £3 million or so in the business to buy the specialist stuff — the super super-cars.” So why not just go to a bank? Because this is not an industry that traditional lenders have been able to understand, Mr Prindiville says.
Suppliers of vehicle stock finance generally lend only against lower value vehicles that sell in high volumes, such as those priced in the £30,000 to £70,000 price range. “If I say to a banker, I’m going to buy a car that had a list price of £250,000, but I need to pay £300,000 and I am going to sell it for £360,000, they just cannot get their heads around it. It doesn’t work on their spreadsheet.”
The idea for the mini-bond came from a wealthy customer who wanted to invest in Prindiville. “They said, ‘go and create a structure that’s safe and secure’. That’s how this came about. I needed to find a way to accept when they said, ‘here’s a few million quid’.”
While Mr Prindiville has found the process of putting the bond together interesting, he says it is not for the faint-hearted.
He estimates that it has cost him more than £200,000 once the costs of all the legal and accountancy advice, and of issuing a prospectus, are added up. He argues that his offer is rather different from the mini-bonds that have been issued by the likes of Hotel Chocolat, the retailer, and Chilango, a burrito chain.
For example, with a minimum investment of £50,000, it is not aimed at ordinary retail investors. He also points out that while many other mini-bonds have not been secured, his investors’ money will be secured against his fleet of supercars and other assets of his company. “If for some reason I get it all wrong suddenly, a trustee will free the assets in the business. But we’ve got enough meat on the bone to make a sensible profit and pay a good return.
“My business has been created by people trusting me with their money and their assets. The bond is another element of that. If someone is going to give me their money, I need to make sure that, if I get run over by a bus, their money is secure.”
He says he doesn’t think mini-bonds will be suitable for every small business. “This is a good way of getting funds but you need to ask, how can I get the investor back the returns? We are buoyant and can shoulder 7.5 per cent returns. I don’t know how many markets there are that can do that.”
Trendy minis have lost their drive and appear to be falling out of favour
Mini-bonds experienced something of mini-boom a couple of years ago (James Hurley writes). Companies ranging from the Eden Project, the Cornish visitor attraction, and Brewdog, the craft brewer, turned to their customers for a loan, eyeing a promotional boost from involving the public in their growth as much as the cash.
Crowdcube, the equity crowdfunding site, began offering its platform as a way of promoting the mini-bonds. It has helped small companies to raise almost £17 million through this route.
While the returns can look alluring, and bypassing the bank to secure debt from customers can have its own attractions, mini-bonds have had their critics.
Like Prindiville’s bond, they tend to be relatively high-risk and investors’ money is locked in because the bond cannot be traded. There are also those who think that the returns on offer, which tend to be between 6 and 15 per cent, do not fairly reflect the risks being taken by investors.
There is often no security on offer. Should something go wrong, it can be difficult for investors to work out exactly where they stand in the repayment pecking order, with some companies not above setting up special vehicles to protect assets from their bondholders.
Perhaps retail investors have woken up to the risks and voted with their feet, as the mini-bond market appears to be in decline. For example, the amount of money raised via Crowdcube mini-bonds over the past 12 months is down by 62 per cent compared with the previous year, according to a provider of data on the alternative finance industry.