Lack of alternative funding awareness costs UK £20bn
A new report, drawn up in a collaboration between GLI Finance and the University of Cambridge, has concluded that the failure of the UK SME community, to tap into sources of funding beyond the mainstream lenders, could end up costing the wider economy as much as £20bn. According to the report, the finance industry as a whole has stepped up to partially fill the gap left by the fact that mainstream lenders such as high street banks are still wary of providing sources of credit to SMEs, but the small business community in general is failing to take advantage. The detailed figures contained within the report include a finding that 56% of SMEs are unfamiliar with the alternatives available, with 80% still relying on traditional credit streams.
Given the importance of the SMEs to the UK economy, with the sector accounting for 65% of net job creation, the figure of £20bn may, if anything, be a conservative estimate. The ability to exploit alternative sources of credit would give SMEs the chance to fully implement strategies for growth and development which may, at the moment, be held back by cash flow problems and the reluctance of mainstream lenders to approve what they perceive to be risky lending.
A Large Proportion of SMEs Having Overdrafts Removed or Reduced
A survey of SMEs has backed up the findings of a recent Bank of England analysis, pointing to a severe tightening of the situation around SME overdrafts in the years since 2011. According to the figures, the value of overdrafts sourced by the SME community has dropped by a stunning £5million per day during this period.
Changes in the rules governing the capital controls of mainstream banks introduced since the crash of 2007/8 mean that this change is likely to be structural and permanent, with banks, and in particular the traditional business overdraft, no longer representing the first credit stream of choice for ambitious SMEs.
While the drop in overdraft lending – from £197 billion four years ago to £163 billion today – could represent a major drag upon SMEs it could also be seen as an opportunity for both the business sector and the alternative finance market. The need for alternative, flexible and innovative sources of credit has never been greater, and the willingness of SMEs to explore the options on offer – allied to a dynamic marketing and information drive on the part of the lenders – could see this ‘crisis’ morphing into the opportunity to create a much more flexible and responsive business environment.
Approval Rates for Small Business Loans Driven by Alternative Lenders
The financial crisis of 2007/8 and the long term ramifications it had for the UK banking industry have had a ripple effect which, in some parts of the SME community, has felt more like a tsunami. Despite the encouraging finding that 73% of SMEs aim to grow their business in the next two to three years, the fact of the matter is that the tightening of lending from high street banks, allied to the torturous nature of the lending process itself, has the potential to act as a massive drag upon growth.
The growth of online lending is just one of the many response to this situation, allowing business owners to source, apply for and, in many cases, receive approval for funding in as little as 30 minutes.
With the feeling being that the traditional banking sector has, to a degree, turned its back upon the SME community, the time has surely come for the SME community to return the favour and bolster the alternative credit market. The more that lenders of this kind and SMEs work together, the more robust the sector will become, the more suitable the products on offer will evolve to be and the less reliant the entrepreneurs of tomorrow will be on what was frankly becoming an outmoded system of finance.
Come and Meet Us
Merchant Money were delighted to attend the third annual Finance professional Show on at the iconic Olympia in Kensington on 4th November. Our presence at the stand was a chance to put a face to the people behind Merchant Money and find out exactly what we can do to help SME power forward into 2016 and beyond.