Are UK Businesses Too Dependent on Banks for Lending?

Are UK Businesses Too Dependent on Banks for Lending?

The financial strength of the five million SMEs around the UK is a vital indicator of the nation’s overall economic recovery. According to recent statistics from the Manufacturing Advisory Service, over two-thirds of surveyed businesses predicted growth over the next couple of years. However, one of the biggest problems for these companies is in gainingaccess to finance.

Perception Gap

Small businesses have traditionally relied upon banks to provide additional funds for expansion and, at present, banks still make up around 80 per cent of total funding for SMEs in the UK. However, there is a growing perception gap between what business owners are looking to borrow and what banks are likely to offer.

Smaller-scale and newer companies are particularly susceptible to rejection by the banks, with nearly half of first-time loan applicants being unsuccessful, as well as nearly a third of SMEs with less than ten employees.

Seeking Alternatives

With banks still extremely cautious over lending to small businesses, it’s important for business owners to seek out alternative sources of funding. Evidence suggests this is already happening, although a lack of awareness by business owners about the large number of alternatives on the market has hampered expansion of this dynamic new market.

The traditional “one-size-fits-all” approach to lending may no longer be viable, due to recent regulatory reforms, together with a restructuring of risk assessment by banks. As a result, SMEs need to research the alternatives in order to find the right deal.

The Advantages of Alternative Lending

Alternative lenders offer an obvious benefit to SMEs that cannot access traditional bank loans. Such businesses may even find the deals on offer from alternative lenders better than those they originally sought from their local bank. The reason for this is that businesses can pick and choose from the many alternative funding sources on offer in order to find a package that matches their particular financing needs.

In addition, a growth in demand for alternative lending among business owners will encourage a healthy level of competition in the entire sector. This should lead to better deals all around for customers, and help Britain’s SMEs to take advantage of improving economic fortunes.

As the UK market continues to promote the growth of the alternative lending sector, smart business owners should consider the full range of finance options available to them.