Why SMEs are rejecting banks and turning to alternative funding

 

Half of small- and medium-sized enterprises (SMEs) would not go to a bank when seeking business finance, a new survey has found. According to the latest research from alternative lender Growth Street, SMEs are increasingly rejecting banks in favour of less traditional, alternative funding options such as invoice finance, asset finance and alternative funding.

What do the survey results show?

49 per cent of the businesses surveyed said that a bank would not be their first port of call when seeking finance, while the proportion of respondents who have considered non-bank finance has risen from 30 per cent in 2018 to 35 per cent this year.

And it is not hard to see why. Over the past few years, a record-low base rate and economic instability has left banks feeling cautious, while strict new capital adequacy ratios have forced them to tighten up their lending requirements.

Meanwhile, alternative lenders have been quick to fill this gap in the market by offering favourable loan terms for small businesses, and even start-ups.

The normalisation of alternative funding has been a long time coming. Invoice finance and asset-backed funding have a long history of offering much-needed cash to young and growing businesses. Unlike banks, alternative finance providers can afford to take a more holistic approach to their credit checks, and they are often happy to accept personal guarantees and residential property as collateral, where no other assets are available.

SME confidence in alternative funders is on the rise

This long-term strategy of providing help to SMEs is finally paying off, as SME confidence in alternative funders is on the rise. According to the Growth Street research, in 2018, 45 per cent of respondents said that they were “not at all confident” when it came to non-bank funding. But this year, the figure had fallen to 34 per cent.

“The fact that nearly half of British SMEs have looked beyond the banks for business finance is a symptom of profound changes affecting the financial services ecosystem,” said Greg Carter, chief executive of Growth Street.

“As more and more SMEs realise that there are real alternatives to the traditional banks’ offerings, I expect this figure to keep rising.

“I don’t think business owners want the moon on a stick: they want fast, flexible access to finance, and they want a combination of cutting-edge technology and empathetic, understanding relationship management. The firms that bring this combination to market will prove crucial in providing SMEs with the best finance options available to them. I think non-bank funding options have a central role to play in the future of UK business banking.”

SMEs choosing alternative funding – where to find out more

Tower offers a full range of alternative finance solutions – products and services aimed at business development and growth. Regardless of how much capital you need or how big you are as a company, we can normally help. Our transaction size starts from as a little as £1,000 and we have arranged funding facilities for brand new starts-ups with little to no trading history to those turning over millions of pounds. Get in touch to discuss how we can help or read more on our Alternative Finance page.

Image: Business Funding UK by SME Loans licensed under Creative Commons 4.0