50% of UK SMEs Don't Seek Alternative Financing, Report Says

For small businesses looking to grow and become profitable, accessing the finance they need is a journey that takes them to the doors of various lenders. However, it appears that a good number of borrowers don’t look beyond what they currently know, meaning they are unaware of a whole world of specialist lenders looking to put money in their hands.

What they don’t know is precisely what stops their lending journey dead in its tracks.


According to a report by Genesis Initiative that analysed the journey taken by small business owners in the UK seeking finance in late 2018, 50% of them don’t look elsewhere for funding when traditional lenders can’t help.

When small business owners in the UK give up their search for finance, it means they can’t grow. And when their growth is stifled, so is the growth of the UK economy as a whole, considering that small businesses are its backbone. This is why limited awareness of alternative finance is troubling.

Where do small business owners go first when looking to secure funding?

54% of UK small business owners have borrowed money in the past two years to inject capital into their businesses. And it appears that over half of these borrowers approached High Street Banks as their first option, while nearly 47% tried other avenues. The report shows that SMEs in the UK are still heavily reliant on these institutions for growth and profitability.

Luckily, 54% of the small businesses managed to secure the funding they needed. But the most interesting realisation is what happened to the other small companies whose efforts didn’t prove fruitful. Half of them weren’t deterred and continued their search while the other half threw in the towel.

According to Martine Catton, Chief Operating Officer of Catalyst Finance, a specialist provider of short-term financing in the UK,

“If 50% of SME’s still don’t seek alternative finance options, we can only assume business owners are still not being given the confidence and knowledge to look elsewhere. Maybe its time that more radical action is taken to help small to medium-sized businesses to be educated much earlier on in their business life cycle thereby giving them the confidence to approach alternative lenders who can assist with their growth journeys.”

Why aren’t small businesses looking elsewhere?

Martin Catton is just echoing the sentiments of the alternative lender community as a whole, mainly that small business owners wouldn’t readily quit their journey if they are made aware of all the options at the start. Ultimately, provided with adequate information, many would find that alternative lenders are more suitable for their growth.

Basically, he is saying that knowledge is power. This means when small business owners know they aren’t entirely powerless should the traditional route not work out, they will be in a better position to comprehensively weigh their options versus their needs. This will allow them to make informed decisions, which can land them on the doors of specialist lenders on their journey.

In fact, the report supports these sentiments since the number one reason small business owners don’t look for financing beyond High Street Banks is that they are honestly unaware that private financing options are available. 68% of small business owners fall into this category. It is no secret that when it comes to loans, every small business owner wants a bank loan, which gives them a narrowed view of just how much lending freedom they have.

Other than that, 28% of small business owners didn’t seek alternative financing options because they thought doing so would upset their bank.

Why alternative lenders should be the first choice for businesses looking for finance

Once business owners are aware of alternative lenders, they can quickly ascertain why they should be the default choice. For one, alternative lenders have broken away from traditional lending models to provide something more flexible and comprehensive. This is reasonable considering the dynamic nature of the business environment where one-size-fits-all solutions aren’t pragmatic.

Besides that, here are a few advantages of working with alternative lenders:

  • Loan applications are quick and easy: when applying for a loan with specialist lenders, the application process takes 15 minutes on average to complete. The application can be completed online with some lenders since they usually ask for necessary business and financial information. This streamlined approach is favourable for companies looking for quick working capital.

  • Funds are available within 24 hours: Once the loan application gets approved, the funds don’t take long to reflect in the small business’ account. Usually, one can expect them to appear in 24 hours or less if it is on a business day. Small companies are generally under a lot of financial pressure, and waiting weeks or months for funds only makes them more vulnerable.

  • Bad credit is not an issue: Many business owners usually worry that their credit score is on the low side to secure the financing they need. However, most alternative lenders are willing to help them despite having a history of delinquent payments. The willingness of these lenders to help is reflected by their willingness to take on more risk.

  • You can use the money as you see fit: As long as the money being borrowed is for the growth of the business, alternative lenders typically don’t mind how it is spent. There are no hard stipulations that limit the number of opportunities you can spend it on.

  • They listen to their borrowers. Alternative lenders take a personal approach to lending. They emphasise on building and sustaining relationships with their lenders, allowing everyone to benefit. For example, if interest rates are too high, they are more willing to negotiate to find a financial solution that works for everyone.

Alternative lenders have built an environment in which small business owners can ensure not only their continued existence but growth and profitability as well. This is why it is a shame that half of the businesses that need their help the most don’t seek them out. Making small companies aware that there are other options available will give them the power to make better funding decisions as they aim to grow their business.