The funding void that many SMEs are experiencing in the UK is looking to be filled by alternative lenders. These can include peer to peer financing, invoice discounting, factoring or microfinance options. However, in competition with the big banks, there are specialist banks coming into the mix.
This funding gap is one reason why many small companies are struggling to grow in the current climate. The flow of small deals in the business funding arena has stalled since 2008. As the economic outlook has become more gloomy, business owners have felt less confident about borrowing money or taking on more debt.
It’s also true that bank funding has become harder to find – and it has become more expensive. Bank are looking to reduce their risk, and they have increased interest rates and the security that they requirte for loans to be approved.
This all paints a picture of banks restricting growth of small business due to their priority for rebuilding post-recession.
Metro Bank and Aldermore are two of the new banks that are looking to address funding issues. Metro Bank is looking for an extra £100-£150million to expand its network. In terms of peer to peer lending, Funding Circle recently raised £10million to hire more staff and promote its services.
However, these new lenders have found it difficult to get off the ground. Interest rates are not always attractive, and many of the new start ups have failed to gain regulatory approval. There is a gap for a new bank that is not owned by one of the established major players – however, there are many obstacles in acheiving this, despite the funding gap that exists.
Other alternative lending routes might be more flexible and secure than looking for new banks and networks. Invoice discounting and factoring, as well as asset based finance, are all growing and present safe, secure and fast ways to funding for many businesses.