The disappearance of traditional high-street bank branches from our towns and villages has been a gradual process over the last decade, but now these established institutions face unprecedented competition when it comes to lending to SMEs.
An alternate approach
With the financial crisis of 2008 came the emergence of a wave of new UK challenger banks, debt funds, peer-to-peer lenders and fintechs. They were established to disrupt the status quo and plug the lending-gap created by high-street lenders with low-risk appetite, reluctant to lend into certain sectors or to corporates without valuable assets to secure.
A decade on and the covid pandemic-driven cash flow crisis amongst SMEs accelerated their growth, with alternative lenders actively participating in the Coronavirus Business Interruption Loan Scheme (CBILS), tripling the number of lenders accredited by the British Business Bank. The pandemic spurred record lending to SMEs in 2020, hitting £54 billion between January and September as 1.5 million businesses utilised government-backed loans. Funding by alternative lenders grew by 24% globally in 2020, despite the pandemic.
In the post-pandemic era of 2021 and the first half of 2022, with SME’s looking for higher leverage, growth funding and cashflow-based lending, alternative lenders continued to thrive, creating a market worth over £6.26 billion. Unlike traditional high-street lenders, they do not need to manage expensive legacy systems and a costly (if ever shrinking) branch network. This enables them to remain lean, agile and flexible on terms and to act quickly when it comes to loan approvals, developing more personalised banking systems and improving the customer experience (by utilising smarter services, designed around customer needs and built for the digital age).
Facing new challenges
In today’s macroeconomic climate, where SMEs face continued volatility, the rise of the alternative lending market is viewed as a positive development by many, allowing them to access debt historically denied through the traditional channels.
For those able to access funding from our well-known high-street lenders, there are still many advantages to doing so, including the banks’ stable, strong balance sheets, their cost-effective lending rates and their ability to offer a full range of business services including deposit accounts, BACS, credit cards and other useful products.
If you are an entrepreneur or business owner reaching out to high street banks for new or increased facilities, but not getting the answer that you need, there may be a solution out there for you in the alternate lender market.