The appetite among small businesses for alternative sources of finance continues to grow. This isn’t just my view, but that of the EY ITEM Club, the respected economic forecasting body, that highlighted last month the significant increase in funds raised by UK businesses through sources other than traditional lenders.
Another august institution that has acknowledged the growing influence of our industry is Cambridge University. The recent opening of the Cambridge Centre for Alternative Finance, part of the esteemed Cambridge Judge Business School, is surely an indication that alternative finance is moving towards the mainstream, since it now merits committed study, and ongoing analysis. One of the Centre’s first pieces of research has just revealed the European alternative finance market grew by 144 per cent last year to almost 3 billion euros, looking likely to top 7 billion euros this year. And it showed that the UK’s leading the way in Europe in this innovative field.
Of course, it is small and medium businesses themselves driving this success. And part of what the Cambridge body has questioned is business owners’ attitudes towards alternative lenders – both positive and negative – and what they say they want from their borrowing experience. I have discussed the findings of the Centre’s recent report conducted with innovation charity Nesta on this blog before, and that research paper provides some valuable insights into borrowers’ motives, needs, and desires. Among other things, SMEs say that they prefer alternative finance because:
- It’s fast. That businesses want to get their hands on capital quickly comes as no surprise, but it was borne out in the Cambridge study. It’s what we hear from our customers all the time, too. Speed of service is one of Boost Capital’s major boasts – in many cases we can make a decision on a business loan in 24 hours – and it’s one that companies tell us that they value above almost everything else. When you decide that you want to make changes to your enterprise, but need external finance to do it, you really want to gain access to those funds as soon as possible to make your plans a reality.
- It’s easy. Compared with the conventional bank loan application process, making the case for funds to an alternative lender seems like a walk in the park. The Cambridge/Nesta research cited entrepreneurs’ appreciation of how easy alternative platforms are to use. Fewer forms to fill out, not so many hoops to jump through, and far less uncertainty. All of these are obviously attractive qualities for busy business owners.
- Customer service is better. As a young industry, we can’t take our customers for granted – not that we would even if we could. It’s a sad fact the high street banks don’t need to make much effort to win and keep SME business, since many company bosses don’t know where else to go for help. Providers in the alternative space have had to woo clients, and once we have them, we want to keep them for the right reasons – not just because of their apathy, or because they feel they have no other options. The better the service we provide, the more custom we get and retain, the stronger our reputation becomes.
- It’s inspiring. Quite simply, some people are excited to be involved in something novel, innovative, and that’s breaking the mould of traditional business finance. The Cambridge results showed that those involved in peer-to-peer lending, or crowdfunding were often motivated by the business ideas on display. We’ve seen too, that our customers are curious about our offering because it’s a way of borrowing that they’ve not encountered before. They’re intrigued, and then pleasantly surprised at the difference of experience. It’s gratifying that alternative finance appears to be tapping into the imaginations of many business owners – people who are themselves familiar with trying new things, and turning ideas into something of substance.
- They can’t get funding elsewhere. This is not to suggest that all those who turn to alternative finance do so out of desperation, but it is a fact that there are far too many perfectly healthy businesses still being turned down for borrowing by the main banking providers. Well, I say that their loss is our gain. I don’t mind what path firms take to our door. However they reach us, they soon realise that alternative funders are talking a language they like and understand, and they’re more than happy to work with us. It’s seen in our referral rates, and repeat business – about 70 per cent of our customers borrow from us a second or even third time.
I predict that as alternative finance matures, and truly moves into the mainstream, plus consumers become more familiar with our funding model, their demands of the industry may change. Perhaps some of the initial fizz, and thrill of the new may go out of things – though, I hope that isn’t the case. But the most important thing we can do is to continue to ask businesses what they need, and want, then truly act to fulfill those desires. That’s what’s putting us ahead of our far more established peers at present, and it’s a distinction that we must work hard to maintain.