It would be hard to dispute the success of the alternative finance sector in recent years. Its rise has been swift, and continues unabated. A small industry challenger has become a serious funding contender in a very short period of time. For those that hesitate to believe me, let me remind you of some key facts:
- The UK alternative investment market grew by 150 per cent from 2012 to 2013, according to research from innovation experts Nesta.
- It reached a value of £1.74 billion by the end of 2014, up from £267 million in 2012.
- If growth continues at the current rate, alternative finance in the UK is predicted to reach a value of £4.4 billion in 2015.
The evidence is there for all to see. And why has our upstart industry made such an impression in a comparatively short timeframe? Much of this success is down to the perfect storm created by a lack of traditional bank finance for SMEs since 2008, the incredible speed of technological innovation in recent years, combined with the advent of funders like ours. Our evolution has been strongly driven by developments in digital delivery, but the influence of customers also can’t be underestimated. All in all, alternative finance is providing a way of borrowing that businesses are increasingly demanding, and they’re shaping how it looks.
Alternative finance is serving the parts of the small business community other funders can’t reach. We see enterprises coming to us that would otherwise shun external finance due to the perceived hassle involved, and the increased expectation of rejection. They say they’re prepared to borrow through us because it’s quick, uncomplicated, and a decision is made in days, not weeks or months. We provide more certainty. Other firms have been let down by the banking establishment because they don’t fit the traditional lending model, operating in industries that conventional lenders typically shun, such as hospitality, retail, beauty, or franchising. However, we see promise in these sectors, and assess each business on its own merits and commercial prospects.
As I was recently telling a workshop held by the National Association of Commercial Finance Brokers (NACFB), more than half of SMEs experience difficulties when trying to gain access to finance from the first source they approach. And we all know that the vast majority of smaller enterprises still tend to turn to their bank first when they need capital. It’s no wonder that some firms are put off trying to find funding at all when they’re so comprehensively knocked back on their first attempt. Thankfully, more are beginning to get wind of the fact that there are alternatives available away from the big banking institutions, and these new providers – whether unsecured lenders like us, peer-to-peer platforms, or invoice factoring – are keen to talk to businesses with ambitions to grow.
After all, growth is the major reason that many businesses seek out money. The companies with which we work need funds for a variety of purposes, but business growth is often the underlying motivation. It might be a desire to refurbish their premises, buy new stock, diversify their product offering, bolster their cashflow, or expand their operation. These are all solid reasons for asking for further capital, and are generally a reflection of companies that have the drive to succeed, and one eye on the future. And those are the kind of enterprises with which we at Boost Capital want to do business. If the banks don’t want to deal with such ambitious SMEs, then it’s their loss and our gain.
Smaller companies in Britain have been told for too long that they’re inadequate in some way, operating in too risky a field, lacking in assets, or trading in the wrong way. The excuses given by the banks for not lending to decent, strong, valid small firms have become ever more varied. It’s got to the point now where businesses are almost more surprised to be successful in their bank loan applications than not. We’re just as tired of this negative approach to business finance as are the small business owners themselves. That’s why we’re working to change the face of funding for smaller firms for good. SMEs need a new approach, and we’re happy to provide it. And just watch us continue to grow alongside our customers in the months and years ahead.