Improving the growth and productivity of SMEs is fundamental to enhancing economic performance .
At the beginning of 2017, SMEs in the UK accounted for 99.3% of all private sector businesses and 60% of all private sector employment in the UK.
Last year saw a substantial increase in the value and number of SME equity deals (up 79% and 12% respectively) in the UK, as well as continued growth in the value of SME asset finance deals (up 12%) and P2P lending (up 51%).
This was at the same time that traditional bank net lending declined to £700m – down from £3bn the year before.
Why do equity and alternative finance options continue to grow in popularity while traditional bank loans decline?
It generally comes down to time – business owners have very little of it and often don't start looking for growth capital until a few weeks before they need it.
Securing equity or undergoing a crowdfunding campaign can take just a few weeks, while P2P lending platforms can grant loans of several hundred thousand pounds in a matter of hours. This compares to traditional bank loans which typically take several months to complete.
Let's say you're the owner of a handful of bars or restaurants, and you've found the perfect site for your next opening, but the seller wants to close in the next few weeks – it's likely that you will go for equity or alternative finance rather than a traditional bank loan, because the loan is unlikely to be completed by the time you need the money.
There's also a perception among business owners that securing debt finance or a loan is harder than securing equity.
In fact, only 43% of small businesses are confident that they will receive a loan if they applied for one, even though 72% of applications are approved.
A big part of this might be down to the opaqueness in the lending process – typically borrowers are assigned a lending director who speaks to credit (the team that ultimately make the lending decision) on their behalf. The borrower is never given the opportunity to meet the decision makers or discuss their business with them directly.
That's why at OakNorth, we take a different approach: we aim to give prospective borrowers quick yes/no decisions and leverage a combination of fundamental credit analysis, data analytics, AI and machine learning to underwrite loans in a fraction of the time it takes larger lenders (weeks compared to months).
We also give prospective borrowers the chance to meet the credit committee – a somewhat more traditionalist approach that has proven to be hugely beneficial for both them and us.
In our view, debt finance should be one of the most popular forms of growth capital as it tends to be the cheapest – by making use of new technologies and taking a bespoke approach to lending, we could dramatically improve both the performance and perception of bank loans.
SIGN UP TO OUR NEWSLETTER TO RECEIVE MORE NEWS LIKE THIS STORY
Wyelands Bank completes $12m trade finance deal
Wyelands Bank has provided a trade finance deal for Canon Garth worth up to $12m annually...
The UK's SME productivity challenge
There are many millstones hanging around the neck of Britain’s economy in early 2019...
Metro Bank, Starling and ClearBank awarded £280m of funding
Metro Bank has secured £120m in funding from Banking Competition Remedies Limited (BCR)...
Falcon Private Bank to discontinue UK operations
Falcon Private Bank has decided to discontinue its UK operations and sell the assets of its London-based subsidiary, Falcon Private Wealth Ltd, to Dolfin Financial (UK) Ltd...
Revolut CEO calls for specialised tech visas
Nik Storonsky, CEO at Revolut (pictured above), has called on the UK government to introduce specialised visas for technology professionals...
Aldermore appoints new head of intermediary distribution
Aldermore has appointed Nick Parker (pictured above) as its new head of intermediary distribution within its retail mortgage business...
Ipswich Building Society to develop enhanced savings proposition over next two years
Ipswich Building Society has confirmed that it will develop an enhanced savings proposition over the next two years, with a focus on both digital and face-to-face services...
BTR: Tenant poacher or happy bedfellow?
The sand has been shifting so much under the feet of private landlords that many may believe they are becoming an endangered species...
Paragon bolsters asset finance team
Paragon has appointed Jan Greenhalgh as head of new business within its asset finance division...
Gatehouse Bank appoints new director
Gatehouse Bank has appointed Roger Evans (pictured above) as its new director of home finance distribution...
Rob Lankey to join Shawbrook as director of commercial investment
Shawbrook has announced that Rob Lankey (pictured above) will join as its new director of commercial investment at the end of February...