The alternative finance sector needs to do more to encourage SMEs to seek other forms of finance when rejected by mainstream lenders and not wait for the government and banks to raise awareness.
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div>The alternative finance sector needs to do more to encourage SMEs to seek other forms of finance when rejected by mainstream lenders and not wait for the government and banks to raise awareness, according to Just Cash Flow PLC.
A report from the Competition and Markets Authority (CMA) last week found that banks are not doing enough to support SMEs and suggested ‘potential remedies’ to address the issue, although John Davies, Director at Just Cashflow, is worried that it is too little, too late.
John told B&C: “My concern is the time this will take.
“Many SMEs are currently missing out on the finance they need to grow and develop their businesses.
“I firmly believe that the alternative finance sector and commercial brokers need to up their game and make businesses more aware of what they both have to offer.”
Russell Gould, Chief Operating Officer at business e-lender Everline, thinks that banks are making it more difficult for alternative lenders to build up a good reputation.
He told Bridging & Commercial: “As well as the hassle-factor of changing providers, a lot of small businesses don’t believe they’ll be approved for a loan with other finance companies because of a negative experience or perception of traditional lenders, so they don’t even apply.
“This stifles business growth and has a massive impact on the economy as a whole.
“While more and more businesses are becoming aware of the benefits of alternative finance, there still remains a lack of knowledge of the sector that means banks are the default for the majority of small business owners when it comes to sourcing additional working capital.”
The CMA report also raised the issue of whether SMEs are actually aware of other forms of funding.
It found that 50% of SMEs open business accounts with a bank that they already have a personal account with, 90% stay with their business account even after the free banking period ends and 90% will go to this bank when they are looking for a loan.
This appeared to confirm the results of a survey by Just Cashflow earlier this year, which found that 62% of SMEs did not know that there were alternative sources of finance other than the banks.
However, it is not just the banks that needs to champion the alternative finance sector – the government has a part to play too.
Earlier this year, the government introduced the Small Business, Enterprise and Employment Act which requires the 10 largest banks in the UK to refer any small companies it refuses to alternative providers.
Rishi Khosla, CEO of OakNorth Bank, told B&C: “While this is a step in the right direction, it doesn’t go far enough, as it fails to acknowledge the fact that alternative finance may not be the right fit for a lot of businesses.
“Instead of focusing purely on the alternative finance sector, the government should be encouraging diversity and real competition in the banking sector and the development of new, innovative and tailored products.”
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