What is Alternative Finance?
The world of commercial finance for SME’s has changed. The rise of challenger banks and alternative finance providers such as peer-to-peer, crowdfunding and private equity is at an all-time high, whilst the high street banks seem to be ever-decreasing their lending appetite along with their headcount. Alternative Finance, which is an umbrella term for business finance from lenders outside of the high street banks and mainstream capital markets, is not necessarily a new concept but is currently growing at breakneck speed, with more and more SME’s turning to alternative lenders for their finance solutions. But why this growth, and why now?
Firstly, the boom in technology, specifically digital technology has made it easier, but more importantly faster, to do business. To survive in today’s marketplace, SME’s need the ability to move quickly and this includes with their finance. Due to their size, their heavy regulation, and the use of cumbersome legacy platforms and systems, high street banks find it difficult to match this speed when it comes to providing finance, where relatively straightforward loans can take months to put in place. This opens a huge opportunity for alternative lenders to step in, where consumers may be happy to pay a slight premium if it means greater speed and responsiveness. Some high street banks have even spawned their own “challenger banks” to compete in this area.
Secondly, with record low interest rates on deposits for such a long time, investors are demanding a greater return on their capital. This has meant greater than ever access to capital for alternative lenders, crowdfunding platforms, peer2peer lenders and non-bank specialist lenders, especially in the real estate market, and gives them the ability to find creative funding solutions without the challenges that more traditional capital markets create.
What does this mean for the consumer?
Alternative finance is no longer a dirty word, or “lender of last resort”. It can offer tailored, creative and efficient funding options. The increased competition that alternative finance providers are bringing to the market is undoubtedly a good thing, however the vast array of new lenders, lending options and bespoke products brings its own challenges and potential pitfalls to SME’s.
Trying to work out the best options for your specific circumstances can be a minefield, especially where you no longer have a dedicated Relationship Manger at your Bank. This is where an experienced broker can be essential to support SME’s navigate this new landscape. At South West Business Finance, all our brokers are very experienced ex-bank managers who, as well as being experts in the market, also understand the importance of relationships. Engaging in a relationship with SWBF ensures that you are getting expert financial advice for your bespoke needs as well as the best products and options to meet those needs, but importantly you are also getting a long-term relationship to help you and your business grow and prosper into the future. In the everchanging world of commercial finance, this is invaluable.