What Are Your Options When The Bank Says ‘No’?
In late 2018 The Genesis Initiative and Adam Tyler published the Access to Finance Report. The report represented the views of over 250,000 SME business owners and a range of lenders to business.
Of those surveyed, more than half of small businesses (52.5%) initially approach their high street bank for finance, despite the growth in alternative sources. Just under half (46%) of those that applied for funding from their banks were declined. Half of those that were declined, chose not to look elsewhere for funding, not knowing there were other avenues to explore.
Asked why they had given up, SME owners cited accessibility, lack of understanding and confidence in lenders they had not heard of as contributory factors. 31% believed fees and/or interest rates charged by non-high street lenders would be too high, 26% were not confident of lenders that were non-mainstream and 11% were concerned about the longevity of new lenders.
This is consistent with our experience, many SME clients set out with a limited knowledge of alternative providers and products available. There is also a perception that alternative lenders have a much higher pricing bracket whereas, the pricing differential between high street and alternative providers has closed.
Over recent years we have seen numerous new lenders enter the SME market with a plethora of new products, increasing both choice and availability of finance for SME clients. In our experience the pricing difference reflects the risk involved and once explained to the client, the SME would prefer to borrow funds to grow their business, even if this means an increase in the price of loan.
A key reason for choosing an alternative provider is speed and flexibility. High Street Banks are still very slow to sign off on a lend and often a deal can take months to progress whereas a specialist lender can turn it around in days or weeks. The range of products available gives SMEs far more flexibility, so overall, they can make the funds work better for them increasing their returns.
There is a growing place for alternative finance providers and SMEs should consider using them. A good advisor will explain the pros and cons of any facility and provide you with all available options.
Q and A with Richard Jones, Managing Director, Pilot Fish
Q. Are you seeing an increase in alternative finance options?
A. The alternative finance market continues to grow, and new entrants are regularly coming to the market. The new entrants will continue to become more competitive on pricing, closing the gap with high streets even further.
Q. Are High Street Banks adapting to this change?
A. We’re not seeing a drive from High Street Banks to change their processes so it will be hard for them to keep up with the speed and flexibility of alternative lenders. It’s not that we don’t like high street banks. Far from it in fact, we help our clients secure finance from their high streets in equal measure. They are still the cheaper option if you can manage on the lower levels of finance they offer compared to the alternatives.
Q. How do you choose the right lender for your circumstances?
A. Alternative finance providers offer a range of options which means the SME market has more choice than ever before. However, as we are now in a market place with a multitude of products and uses it is vital businesses receive informed advice and support to ensure they access the right funding that is fit for purpose.
Alternative Funding Client Case studies
A client that was refused finance by their high street bank was able to secure asset finance from another provider. The injection of funds enabled the client to grow his business and he subsequently secured an additional working capital loan and an unsecured loan to further grow his business.
A large brewery couldn’t get the level of funding required from their bank on an invoice discounting line. An alternative lender offered a facility 50% bigger than the bank and implemented the facility within weeks.
Two of our clients had their invoice discounting facility pulled by their bank after a period of tough trading. We sourced an alternative provider who was able to step in and continue to finance the SME, allowing them to implement improvements and improve trading results.