Alternative finance challenging mainstream lending

Before the concept of alternative finance or peer to peer lending was born, borrowing money off high street banks to start your first business or to grow it was just about one of the only options available. However with the rise in popularity of alternative finance, SMEs now have more options of where they can go to for business funding. Along with the government recognising SMEs to be the backbone of the British economy, more policies are being put in place to help with small business funding.

Being turned down by mainstream lenders

One in six (16 per cent) UK small businesses say they’ve been turned down for loans by mainstream lenders such as banks in 2016, an increase on the previous year of 11 per cent, a study by commercial finance experts from Amicus has shown.

Nearly a third (31 per cent) of SME owners reported that their inability to secure finance terms with a mainstream lender meant that they had lost out on a business deal or investment opportunity. In effect, this has led to greater interest in alternative finance – including forms such as property finance, crowdsourcing, invoice finance and asset finance.

Alt finance

Why are SMEs turning to alternative finance?

The findings highlight how over twice as many small firms believe that mainstream lenders are unable to reach quick enough decisions with speed of decision being a serious problem; this is up from 6 per cent in 2015.

  • The main reason was that the greater flexibility offered by alternative finance providers makes them more attractive than traditional lenders, Over half of SME owners (51 per cent) think this, up from 45 per cent in 2015.
  • Second was greater ability to lend (46 per cent),
  • Longer payment terms (34 per cent) being third.
  • This is followed by speed (30 per cent),
  • Specialist knowledge of their clients’ industries and challenges (29 per cent),
  • More compelling payment structures (27 per cent).

What does this mean for the future?

SME owners predict that demand for alternative finance  will increase by an average of 28 per cent over the next two years, up from 26 per cent in 2015 – with over half (51 per cent) having reported to have already used alternative finance or considered using it.

It’s clear to see that demand for alternative finance is growing in popularity as traditional lenders fail to meet expectations in terms of agility and speed that is required by SMEs. With the three organisations announced as the designated finance platforms under the Small and Medium Sized Business Regulations 2016, this should offer even more opportunity for businesses to secure the finance they need.

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Sources: smeinsider; finextra; startups; creditman