My wife, despite having an economics degree, and having worked on personal finance programmes, has a savings account called Liquid Gold. You'd be forgiven for thinking that such an imaginative title for a savings account would promise a reasonable return. But when she looked closer, she discovered that she had been receiving 0.2% interest.
We both felt we had been a little too trusting of the bank.
And then there are people like my mum, who, after 35 years of teaching, has had her savings lost by Equitable Life. Sometimes, life just isn't equitable. And there are lots of other pensioners and savers like her who are struggling to get a decent return on their cash.
On the other side of the equation are businesses. Lots of small and medium sized ones who, despite good operating cash flows, cannot raise money to grow. Whether it's to fund working capital in the case of trading or consumer products businesses, or to fund capex in the case of manufacturing, retail and restaurant businesses. We've seen a shift from one absurd situation to another. In 2006/7 businesses were raising seven times EBITDA in debt. Now, the message coming from all the main banks is that they are only looking to lend to asset rich companies like property businesses. 'Cash flow lending', i.e. lending to operating businesses, even ones with quite certain future cash generation, has become a no-go. This is a shame.
The government has attempted to fix the liquidity crisis by pushing more cash into the system. But the banks are keeping the money. With increased regulatory pressure, it makes more sense to bolster their balance sheets than lending to us or companies like us. The story doesn’t look much better for government guarantee schemes. A fellow entrepreneur who gleefully took his guarantee to his bank was told 'we don't like being seen to use the government loan guarantee scheme'.
The Business Growth Fund has been created, but is mandated to provide equity rather than debt. And businesses who don't need to dilute don't and shouldn't have to. So the result is a slower economy, and fewer jobs. Until the government creates its own direct lending entity, we are all going to have to find sensible solutions. Solutions which help both savers and businesses.
Inspired by the emails we regularly receive from people asking us to open a Leon near their office or home, it occurred to us that our customers could help fund our growth, and earn interest at the same time. If this were a school playground, it would be called swapsies.
That’s why we launched a customer bond. You can buy a bond of £1,500, £3,000 and £5,000 British pounds and receive 10 to 15% gross interest in £eon pounds. That interest can only be spent in Leon, of course. After three years you get your money back or roll it over and carry on receiving the interest. In addition to this interest, there's a four times a year premium-bond style draw for big foodie prizes such as a cooking holiday in Marrakech... or your own bespoke Leon pyjamas. And we are also setting up cooking classes for kids with renal problems and their families, who need very special diets.
We were inspired by the success of the Hotel Chocolat bond, and Mr and Mrs Smith has been raising a bond in the last month as well. There are now a number of lawyers and accountants who are familiar with how to get these done. In our case, we needed to create a plc to issue the bonds.
If we can grow, and provide our customers with a rate of interest that is healthy, then not only is Leon a step closer to making it easier for everyone to eat good food, we may all have found a way of cutting out the middle man and achieving growth despite the banks. Perhaps there is hope yet for the likes of my wife and my Mum.
More information on the Leon Bond can be found here