There’s been a positive buzz around business lending in recent days. It’s all part of Love Lending Week, a celebration of the efforts being made by commercial finance brokers to match small businesses with finance beyond the typical bank loan. And the hard work is paying off. SMEs tapped into a record £1.25 billion worth of funding through brokers in September alone, a 55 per cent increase on the year before, according to the National Association of Commercial Finance Brokers (NACFB), which is running this week’s event. All of it indicates that ever more business owners are defying the banks’ reluctance to lend, and are seeking out alternative sources of credit elsewhere.
The record-breaking figure reflects the growing numbers of capital-hungry small firms that are turning to commercial brokers for help, and successfully find the funding they need often from non-bank sources. Some are opting for peer-to-peer or crowdfunding platforms, others for asset-based lending or invoice finance, while areas such as vehicle finance are also proving attractive to smaller enterprises. And unsecured short-term loans, such as those offered by Boost Capital, are another increasingly popular option with many SMEs.
Frequently, it is brokers who are making the introductions between these businesses and lenders, employing their valuable knowledge of available funding, and using their expertise to pair firms with the perfect type of finance. All week these financial professionals will be tweeting their clients’ many success stories via the #LoveLending hashtag.
Spreading the word – with the Government’s help
While it’s welcome that more businesses are getting to know their local brokers, and are learning what the alternative finance industry has to offer, there’s still work to be done.
- Just six per cent of SMEs know that credible financial alternatives exist beyond their regular bank, according to recent NACFB research.
- Many smaller companies also don’t realise that a broker could be a quick and useful route to the funding they need.
Raising awareness is vital to helping more deserving enterprises to get the capital they need to thrive and expand. The Government’s referral programme, which will pair firms rejected for bank loans with alternative lenders, is on the horizon, and could do a lot to help. Only last week, the Treasury closed its consultation on how this will work in practice, and once the Small Business, Enterprise and Employment Bill comes into force – most probably next year – many more SMEs should discover alternative funding. The new laws will require the main banking providers to pass on the details of small firms they turn down for lending to private sector platforms, as long as businesses are willing for their information to be shared. These independent platforms will then themselves link the companies with alternative providers.
Bank lending still lacking
That many small business owners need alternatives comes as no surprise. The most recent quarterly Trends in Lending figures from the Bank of England revealed that capital flow to small and medium firms remains largely flat. Many SMEs are also opting to repay debt rather than taking out new borrowing. This likely reflects a continued unease about the state of the economy. It could be blamed, too, on a general battle-weariness among business owners who have tired of asking for funding after several years of loan rejections. Boost Capital’s infographic reveals that 79 per cent of business owners are reluctant to reapply for a loan due to being knocked back before. It also shows that just 55 per cent of loan applications made between the last quarter of 2012 and the first quarter of 2014 were approved.
The fact remains that most businesses still do need extra capital, whether to run their operation, or to act on any plans for growth and expansion. As our business growth infographic shows:
- About 45 per cent of SMEs plan to grow in the next six months. The appetite to expand is greatest among businesses at the larger end of the SME scale.
- Yet, lending to small and medium businesses in the UK fell by £2.6 billion between 2008 and 2012.
Share this Image On Your Site
Alternative finance becoming mainstream
The recent Trends in Lending report also points out that more frustrated firms are looking to alternative lenders, citing their greater flexibility and faster processes as major attractions. But this growing popularity of alternative finance has produced a strange outcome. At the same time that the banks aren’t lending to small businesses, they are starting to register the growing influence of alternative finance with SMEs. This can be seen by both Santander and the Royal Bank of Scotland recently announcing tie-ups with third-party operators to provide peer-to-peer lending services for small business customers. Critics have labelled their efforts as token and inadequate, a type of digital box-ticking, particularly given that other parts of their businesses continue to ignore their SME customers.
But, the very fact that the banks are trying to get in on the alternative funders’ act shows that the industry is maturing, is heading for the mainstream, and looks set only to grow in prominence in the coming months and years. Working with Britain’s network of commercial finance brokers, we at Boost want to get the message out to small businesses – that we love lending, too. We’re ready and able to give them the funding they need to grow and flourish. And this Love Lending Week – like every other week of the year – that’s what we intend to do.