Bank lending to British businesses fell dramatically after the financial crisis of 2008. Quite understandably, with the threat of having its balance sheet ripped apart, high street banks became cautious in offering credit to the vital SME sector which accounts for 99% of all private sector businesses as well as employing 14.4 million people every day.
Thankfully, the alternative finance market has reacted incredibly but SMEs need to be aware of the alternative business funding options which do not include the term, “bank overdraft”.
And quite rightly so.
Here’s the main reasons why SMEs and businesses may need to look past traditional bank funding:
Any small and medium business owner will testify to the fact that there will always be periods in the business cycle where cashflow is at its lowest yet the operating costs of the business still need to be accounted for. Whether its affording the payroll at the end of the month, paying HMRC liabilities or your vital suppliers, there will be situations where you need access to finance fast, without the time delay that is typical of high street banks as they process your documentation without giving a decisive answer.
The alternative finance market can source funding within weeks, even days if necessary. More importantly you get a decision, whether yes or no, much quicker than via traditional funding routes.
Specialisation of alternative business finance products
The alternative finance market is characterised by how it is segmented and specialised according to the requirements of different niches. Indeed, the UK’s businesses are a complicated species; namely, they’re all different, where one finance facility may work perfectly for a manufacturing firm and yet terribly for a construction subcontractor.
From select invoice finance providers to peer to peer development lenders, businesses can search for facilities that are tailored to the way their firm actually operates, rather than the one-size-fits-all approach common in the past. This, in itself, is a revolution in business finance.
Banks have had to err on the side of caution in recent times after the loss of confidence from the markets and the government bailouts. At Funding Options, we are approached by businesses everyday who have been turned down for finance because their case is too complicated for risk averse criteria set by their bank. Specialist alternative finance providers are good at a few things rather than many, and this know-how means they are able to deal with your complications whether its understanding the supply chain or your business sector.
Similar to the previous point, if the finance required becomes too challenging for the lender and doesn’t fit the mould, the borrower is left with nowhere else to go. When banks turn down your application, they have not had the authority to advise on other solutions. Thankfully, this is changing but, in general, the alternative finance market is much more flexible and obtaining the necessary finance can be accessed through various means. Using a whole-of-market intermediary means you can approach the best provider for your business but still have the options to explore alternative routes given the expertise of these services.
In summary, the non-bank finance options for SMEs and businesses in the UK is looking healthier than ever. The alternative finance market even has the backing of the government’s British Business Bank, which is ensuring competitive rates and terms for small and medium-sized firms. It’s just time that they knew about it.
Images: ”Business diagram on financial report with coins/ Shutterstock.com“
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