March 2018
By Damien Druce, director and head of intermediary sales at Assetz Capital
It seems smaller firms are doing their best to avoid borrowing money from high street banks, as research from the British Business Bank found that SME demand for bank loans fell to its lowest point since 2011.
There are probably a number of factors driving this - difficulty in getting credit approval, the length of time an application takes, a move to telephone banking for swathes of SMEs used to having face-to-face contact, and most notably the phenomenal growth in the popularity of alternative finance. A good example of the latter being peer-to-peer lending, which surged by over 50 per cent in 2017. This is indicative of its investor- and borrower-friendly approach to business finance.
It is important that lenders, as well as brokers, continue to educate the market to make borrowers aware of the different types of funding available. There’s also pressure on lenders to clearly articulate their USPs so that people can make informed decisions and decide which route of finance will work best for their business.
One of the other most important factors is around speed of response. Traditional lenders with lengthy processes can make applying for funding a stressful and daunting task. Businesses require decisions in a timely manner and cannot afford to wait weeks or months for a response, which could ultimately result in a rejection. Waiting on a decision can hinder growth, and could delay customers on purchasing new stock, investing in equipment or taking on much-needed staff. Business owners want a quick response and the security that the funding will land in their account, so they can continue to go about their daily business.
Another way to stay ahead of the competition is to ensure your product range is relevant and up to date. It may sound simple, but often finance products can be incredibly complex and hard for businesses to digest. Having a set of products that meets the demands of borrowers and are easy to understand can make a huge difference. We recently launched our residential refurbishment loan after seeing an increase in demand from landlords and smaller developers looking to invest in refurbishment projects.
Offering nationwide coverage is another essential factor in order to compete with the rest of the market. Having people on the ground across the UK regions allows lenders to develop a personal relationship with both businesses and intermediaries. People often want face-to-face contact when doing business, so it makes it much easier if your finance provider is on your door step.
Above all else, lenders must have the liquidity to support their customers as they grow. It will make your proposition much more attractive if borrowers have the security that funding facilities can grow in line with their business. At Assetz Capital, we now have well over 25,000 investors on the platform as well as institutional funding contracts and the appetite to invest in UK SMEs, and the resultant growth of UK GDP has never been greater.
Gone are the days when SMEs would automatically turn to their bank as a first port of call for funding. As business owners continue to embrace the rise of alternative finance, lenders need to constantly evolve to stay ahead of the curve in what’s becoming an increasingly competitive market. It is nonetheless incumbent upon alternative finance lenders and their brokers to make sure that awareness in alternative finance continues to grow strongly.