Business finance, in particular alternative lending, has grown substantially in the last 5 to 10 years; reports now show that the alternative lending market is on track to be worth £12.3billion in the UK alone by 2020.
In the past, an SME business owner would rely on a long-standing relationship with their local business bank manager when it came to sourcing funding for their business. However, mainstream banks have gradually scaled back their services to SME clients.
In 2018, the mainstream banks turned down at least 25% of all SME funding requests – this equates to over 100,000 loan applications, to the tune of some £4billion. Furthermore, business overdraft lending has reduced by 52% in the 4 years to 2019.
As the alternative lending market has been growing, so too has the range of products available to prospective clients seeking to source funding when mainstream options are no longer available.
SME business owners can now benefit from a range of products, such as:
- Unsecured/Secured Business Loans
- Asset Finance
- Invoice Finance (factoring, discounting, confidential)
- Credit Lines
- Commercial Mortgages
- Trade Finance
- Bridging Loans
- Management Buy Out/Management Buy In Finance
These above examples are to name but a few. With hundreds of different lenders in the alternative lending market, there is generally a suitable solution to any client requirement. Gone are the days when a client would need to commit to a loan to inject cash into their business – the wide range of solutions available now allows SME owners to obtain a truly bespoke solution to any requirement.
In addition to the above products, lenders in the alternative market have also tuned in to the range of circumstances that SME owners can often find themselves in. For example, Distress Finance can now be provided if insolvency is a real threat to a business. Previously, SME owners in this position were either unlikely to obtain funding or would need to jump through numerous hoops just to discuss options with their bank.
Construction Finance is another example where the alternative lending market is differentiating itself from more traditional funding routes. With the collapse of Carillion in January 2018, the vast majority of mainstream lenders were quick to withdraw funding solutions to the entire construction industry – deeming it too risky to provide finance to this industry.
In the aftermath, alternative lending companies quickly realised that there were many well run and established businesses within this sector and started providing bespoke solutions, built specifically with the construction industry in mind.
With so many different options available to SME owners, the importance of working alongside a reputable and reliable commercial finance broker is now even more paramount.
By understanding a client’s requirements and having a full, holistic knowledge of their client’s situation, a good commercial finance broker will be able to approach the right type of lender to source the funding – saving on valuable time and effort.
One of the most common reasons for sourcing business finance is cash-flow – in fact, up to 90% of SME businesses that cease trading cite cash-flow issues as the key reason that they fail. Additionally, 55% of SME’s find cash-flow to be the biggest hurdle in their path to success while over 40% point to an increase in their working capital requirement compared to the previous year.
The days of SME’s automatically looking at the bank as their first and last option are long gone. The growth of alternative finance has given budding businesses access to a wider range of funding options with flexible and bespoke solutions tailored to meet their funding requirements.
However, SME’s are not opting for alternative finance just because they’ve been rejected for credit by the banks. Greater recognition of their flexible and tailored asset-backed or invoice finance planning services, offered by alternative finance providers, has also played a major role in this migration and meant that some businesses are now choosing alternative finance as a first port of call. However there is still more work to be done to raise awareness and increase access for businesses and improve the time they spend waiting to be approved for finance.
We are pleased that Neil Sharp from TML Finance has contributed to produce these briefing notes and to discuss your own business funding options, please contact Neil as below:
Neil Sharp – 07590982491 – firstname.lastname@example.org