Time for SMEs to look more closely at alternative finance sources

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In mid-January the free business newspaper City A.M. quoted the MD of a business finance group, Peter Alderson, on the prospects for SMEs in 2018.

He said: “For many business owners across the UK January is a time to consider the year ahead….”

Alderson observed that access to finance remained a critical consideration for UK small businesses and “more are exploring financial options outside of traditional bank offerings that can support the level of business development needed to compete in new tech and online spaces.”

More recently, Alderson’s observation was backed up by Keith Morgan, CE of the British Business Bank, who said that more SMEs were diversifying their sources of funding, with a 79% increase in equity investment, a 12% jump in asset finance and a 51% rise in peer to peer lending.

The website moneynet.co.uk recently cited a quarterly report from Close Brothers whose research of 900 small businesses had found that just 17% of UK SMEs felt their high street bank was well enough equipped to offer them bespoke advice and only 24% of the respondents felt that banks offered a range of finance products that suited their needs.

Previous Close Brothers reports had revealed that only 26% of SMEs thought their bank could meet their funding needs.

Nevertheless, as the business and finance website also pointed out, many SMEs are still unaware of all the finance options that may be available and tended to go to the banks, where 50% of first-time borrowers were rejected.  A third of SMEs, it said, reportedly gave up after their first rejection.

There has long been a perception that despite various Government initiatives over the years, the major High Street banks remain reluctant to lend to SMEs, or that their interest rates are too high.

More significant for SMES, however, are the recent announcements by several banks that they planned to close branches, from RBS announcing the closure of 259 (including both RBS and NatWest branches) to Lloyds closing 49 and Yorkshire Building Society planning to close 13 branches.

Many of these are in rural areas and small towns, and this is a significant inconvenience for SMEs, such as local retailers and suppliers of services, who often rely on their local branches for face to face discussion about their businesses.

When it comes to applying for finance via the High Street banks as compared to alternative providers of asset and other finance, the crucial factor is turnaround times for processing applications.

Here, alternative lenders easily beat the banks, which can take up to six weeks to come back with an answer.

Typically, the alternative lenders will take a maximum of two weeks and in most cases businesses will get a response within one or two days.

Perhaps Mr Alderson and others are correct that the message is getting through to SMEs that there are other alternatives and more are exploring these options.