GRID founder Derek F. Butler has used his training as a Chartered Accountant to provide alternative finance to Ireland’s SME community.
It was during his time working with GOAL in Uganda that Derek F. Butler, FCA and founder of GRID, learned about microfinance – a type of financial service aimed at those with little or no access to commercial bank lending.
Butler had studied business and economics at Trinity College Dublin before going on to qualify as a Chartered Accountant and Registered Auditor with PwC, working first with the firm in Ireland and then in the US.
“Qualifying as a Chartered Accountant provided me with a life-long skill set. It allowed me to have those formative experiences that would eventually lead me to set up GRID,” Butler says.
“I worked with PwC in Boston and Los Angeles. It was my time in Boston, in particular, that was really insightful. We were auditing investment funds and it made me aware of just how tightly held some of the world’s capital is by big institutions and funds.”
Butler left PwC in 2009 and relocated to Uganda to join GOAL, the humanitarian charity, as finance manager followed by financial controller.
“I couldn’t have made that move without my training with PwC. It allowed me to use my skills to make the greatest possible impact I could think of at that time,” Butler says.
“There were these Village Savings and Loan Associations (VSLAs) in post-war Northern Uganda pioneered by an organisation called Care.
“It was an extraordinary model. Groups of women would come together every week to save and lend together. All they needed was a lockable box, a small ledger and some training. It was microfinance in its most basic form.
“There were hundreds of these VSLAs in Northern Uganda and they were transforming their communities because they were able to get the little money they had working more effectively.”
Alternative forms of finance
The experience opened Butler’s eyes to the potential of alternative forms of finance. “The ‘red thread’ in my career has been the desire to make a positive impact,” he says.
“We have spent centuries putting banking on a pedestal and making the banking system more and more complex.
“In reality, banks are supposed to play the same role as the VSLAs, which is to clear capital from those who have it to those who need it.”
Butler moved from Uganda to Haiti in 2011 to take up the role of Country Director the year after the country had suffered a devastating earthquake.
“I spent two fantastic years in Haiti and then decided to return to Ireland to do something positive here,” he says.
“It was 2013, the Irish economy was still very much in cold storage and many small businesses were struggling with the credit crunch.
“I had a long-held passion for small businesses and really wanted to do something to alleviate the small business banking problem.”
When Butler established GRID in 2014, it operated initially as a peer-to-peer lending platform.
Peer-to-peer lending allows individuals and businesses to lend money to each other without using an intermediary, such as a bank.
“We launched 18 months after I came back to Ireland. I wanted to use a digital platform to support the Care model of connecting those who have capital with those who need it,” Butler says.
“We wanted to focus on small business, because they are really the lifeblood of most communities in Ireland, but people often fail to realise how hard it can be to make a small business work in a world that’s built for scale.
“I felt SMEs were worthy of support and a critical ingredient in getting the Irish economy back on track.”
At the time, peer-to-peer lending was new to the Irish market but more established in the UK, where the first peer-to-peer lending platform had been launched in 2005 by Zopa.
“Our big challenge with the model in Ireland was the lack of regulatory certainty. We were monitoring its progress in the UK where the government had gotten firmly behind peer-to-peer lending,” Butler says.
“We expected that the same would happen in Ireland and we advocated for the Irish Government to introduce a regulatory regime here, but they kept deferring to the European regulatory agenda.”
The Central Bank of Ireland would not announce a regulatory regime for crowdfunding service providers until 2022.
“It took a full 10 years for that regulation to be introduced and we couldn’t wait because we couldn’t scale our business without regulatory certainty,” Butler explains.
“So, we decided to pivot to a more traditional balance-sheet lending model in 2017 – still fully digital, but we started lending the money ourselves.
“We also pivoted our core product from a traditional term loan to a cash advance loan. We were really the pioneers of cash advance or flexible lending in Ireland.”
€135m lent to Irish businesses
To date, GRID has lent €135 million to more than 2,500 businesses in Ireland.
“The pivot to being a balance sheet lender and cash advance provider was the right decision. It has allowed us to help a lot of businesses very effectively,” Butler says.
Now, he is focusing on developing new non-lending services for businesses, including an accounting solution and analytics platform.
“Our analytics platform is a bit like a ‘robo-CFO’, which can help small businesses to understand their business – and the financial ‘health’ of their business – in a much smarter way, particularly those that don’t have an in-house accountant, let alone an in-house CFO,” says Butler.
GRID lends to companies operating across all sectors in Ireland. “Where we fit is in the small and micro end of the business market,” Butler explains.
“Larger and medium-sized businesses either have the resources internally to fund growth or easier access to bank finance.
“Our solution sits alongside bank finance, but we find that most of our clients are small businesses with a turnover of less than €10 million.”
His ‘North Star’, Butler says, is to help at least 10,000 businesses in Ireland. “Our new analytics offering will allow us to service a lot more small businesses much more quickly, helping them to grow their business day by day.”
Current outlook for SMEs
The outlook for small businesses in Ireland has improved in 2024, Butler says.
“It’s a lot better than it was six months ago for two reasons: first, there is clarity now about tax warehousing and, second, I think there is finally a recognition that Government-driven cost inflation has had a hugely detrimental impact on small businesses.”
The Department of Finance introduced tax debt warehousing in May 2020 in response to pandemic-related challenges facing many companies in Ireland.
The scheme allowed businesses to temporarily defer VAT and Employer PAYE, certain self-assessed income tax liabilities, and Wage Subsidy Scheme and Employment Wage Subsidy Scheme overpayments, on an interest-free basis for an extended time.
Finance Minister Michael McGrath TD, FCA, announced in February that the three percent interest rate applying to warehoused debt would be reduced to zero.
“There had been a huge overhang in the SME sector from tax warehousing,” Butler says.
“As long as the repayment capacity of small businesses for their warehoused tax was unclear, it was difficult for them to grow.
“Now, we have clarity and those that can repay their warehoused tax have agreed arrangements with Revenue.
“That’s important because SMEs typically transact with other SMEs, so the ongoing uncertainty over tax warehousing created wider uncertainty in the sector and slowed business.”
In May 2023, GRID released the findings of a survey of 300 small businesses in Ireland, carried out with Red C, the research firm.
Just 61 percent of respondents said they were making a profit at that time, and about four-fifths said higher energy prices and the cost of raw materials had negatively impacted their business.
“That research was really about awareness of Government-driven cost inflation among small businesses,” Butler says.
“The majority of the respondents said, ‘We don’t believe the Government understands what it is doing with big policy announcements that are driving inflation and cost pressures for SMEs’.
“I think it’s only now that the Government has become fully aware of this reality. With the change in leadership, there is a genuine recognition that SMEs are under pressure and I think we can now thankfully expect a policy response that benefits the country’s small businesses.”
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