SMEs have found it notoriously difficult to obtain secure funding during the downturn with a trend of the banks refusing to lend. The Bank of England’s Trends in Lending April 2014 report showed overall lending to UK businesses was down by 2.1% from a year ago.
The recently published Trends in Lending Report in July 2014 showed some improvement, with a positive net rise of £235 million in lending to SMEs in June 2014. However, it also revealed a £3.45 billion net fall in overall bank lending to non-financial businesses in the UK, leaving many SMEs in serious financial difficulties.
The problems with bank finance have led to a rise in alternative lending. Money provided to smaller firms by alternative online funders rose from £318 million by last September to £852.5million by June 2014. It is expected to reach more than £1 billion in August this year, according to finance firm Fleximize (launched in January 2014 offering loans and revenue-based finance to UK businesses). It estimates that during the period, the amount of funding provided rose by about 11.7% a month, equivalent to about £2.2 million per day.
A statement made by Max Chmyshuk, the founder and managing partner at Fleximize, reiterates the growing trend and importance of alternative lending:
‘Reaching the billion pound lending benchmark is a huge milestone for alternative lenders in the small firms sector. As the industry works more closely with Government and banks, alternative finance will become better recognized, allowing us to reach £2 billion and beyond quickly. We are hopeful that legislation encouraging banks to work with alternative finance institutions will be introduced.’
However, despite the struggle, research released recently by Albion Ventures (UK independent venture capital investors) reports that 81% of London’s SMEs expect to see either dramatic or moderate growth in the next 24 months. When the survey was taken last year, only 54% said the same. The capital’s SMEs are more confident than the UK’s in general with less than two thirds of the equivalent outfits nationally expecting to grow in the next two years.
London’s SMEs are also much more positive about accessing finance, with 47% expecting to in the next year. Only 6% say they have done so in the last 12 months.
Patrick Reeve, partner at Albion Ventures, comments on the year ahead for SMEs:
“After spending the past few years hunkering down and trying to survive, the next 12 months will see a major increase in demand for finance as firms look to fuel their growth ambitions with fresh capital.”
It is important to note that although the role of bank finance is dwindling, it is still the largest source of capital for SMEs. However, it will be interesting to see how the banks operate in the year ahead. Will we see more referrals to alternative lenders when banks reject credit applications or more of a focus on their own form of alternative funding such as asset based lending?