High Street banks’ credit criteria continue to get even tighter, with increased regulations and the more boxes they need to tick restricting their lending capabilities.
Although they have liquidity, they don’t have much appetite to lend. Hence the near ‘lockdown on lending’ during the pandemic, with most banks focusing on serving existing loan books.
Compare this with the alternative lending market, which was born out of the global financial crisis in 2008 and has been building its market share ever since.
UK Businesses of all sizes are catching on to the fact that not only are there more funding choices availableto them, but are justifiably attracted to these lenders core appeal which is a specialist focus in their niche markets and a flexible and entrepreneurial approach to all types of funding requirements, withloan applications looked at on merit and not just on a box ticking approach like the High Street banks.
Andwhile they do all have different risk appetites, they all have fundsavailable to lend and are keen to support the right proposition and provide a genuine alternative to the High Street lenders.
Traditionally, high street bank lending was always the most common source of external finance for SMEs, but recently these banks have become reluctant to lend to certain sectors, particularly new, innovative and fast-growing enterprises with a higher risk-return profile. And when bank loan application rates for businesses turned down are looked at closely you find that new and start up businesses make up 50% of that rejection rate
Similarly, Property funding requirements are always very diverse in nature, with risk factors such as uncertain exit dates and values demanding and receiving a flexibility and understanding from alternative lenders which make high street banks’ blanket approach look weak by comparison.
This is not a reflection of the alternative lenders risk appetite, merely down to their ability to react swiftly to market demand, their more entrepreneurial approach, and a flexibility in their capital base all of which combine to put them in a better position than the banks, which have restrictive criteria and a metric-driven approach which can often result in a computer-generated “No”
Rather than accepting credit constraints as “normal”, it becomes increasingly important to broaden the range of funding options available to businesses and entrepreneurs in the UK to ensure them that they can continue their role in contributing investment, growth, innovation and employment, both locally and nationally
There are now over 300 challenger banks and alternative finance providers offering a range of funding options including Bridging and short term finance, property investment and development funding, secured and unsecured business loans, asset based finance, cash flow and working capital solutions
While Modern technology has made incredible advances in loan processing and it’s partly due to this that the alternative finance market has exploded at the rate it has. personal relationships still remain vital in the world of business and property funding.
Nowadays, SMEs with under £1m turnover are unlikely to get access to a bank manager at all and can often find themselves limited to call centre access. Business owners and property professionals likewise might have to wait weeks for any response while with an alternative lender an agreement in principle will only take a matter of days at most
The chosen route to market of most challenger banks and alternative lenders is through specialist brokers, and this is where the personal touch and relationship comes to the fore, with the broker first getting to understand all the ins and outs of the clients business or project proposal and requirements and then presenting and packaging this for the lender to enable them to make their decision.
It’s no surprise then that the challenger banks and the alternative lenders are winning over more and more business owners and property professionals looking to fund their growth.