UK firms still focused on bank lending – but will Brexit change that?

By Ryan Weeks on Wednesday 27 July 2016

Alternative Lending

British Chambers of Commerce survey shows awareness of alternative funding options still low in relation to traditional funding routes.

A joint survey of more than 1,000 businesses conducted by the British Chambers of Commerce (BCC) and Bibby Financial has found that bank overdraft facilities continue to dwarf alternative funding solutions in popularity among UK firms. 92.8% of the firms surveyed were familiar with bank overdraft facilities, versus just 41.6% with peer-to-peer funding.

The survey, which was conducted before the EU referendum, also found that 88.2% of respondents were familiar with bank loans, 86.1% with commercial credit cards and 86% with leasing/hire purchase facilities. Conversely, just 38.9% were familiar with angel investment, and only 46.1% were familiar with trade finance – two areas for which the alternative finance sector boasts a number of platform-based solutions. 

Other findings from the survey show that close to half (47.7%) of the businesses surveyed had applied for finance within the past 12 months. For those firms, business growth (42%), improving cash flows (26%) and startup funding (14%) were the key drivers for having sought funding. Of the companies that were successful in applying for finance, but which ultimately rejected the terms offered, 54% said that the interest rate offered had been too high, while 39% said that the collateral required was too high.

Dr. Adam Marshall, Acting Director General of the British Chambers of Commerce, says that the survey results imply that UK firms had been “treading water” and delaying expansion plans prior to the referendum. He continued: “At a time of transition for the economy, government help can play an important role. So there is work to be done to raise awareness among businesses of schemes such as the British Business Bank, which was set up by the government specifically to make finance available to firms via banks and alternative lenders to promote business growth. The clear message needs to be that growth funding is available.”

The government is now being called upon from both sides of the fence. While Marshall calls for awareness of the British Business Bank’s activities to be boosted among SMEs, Funding Circle co-founder James Meekings has openly called for the British Business Bank to back more businesses through the platform, in the wake of post-Brexit uncertainty.

But a number of platform representatives have suggested that uncertainty stemming from the Leave vote may in fact create a time of opportunity for alternative finance providers. Small business lender Capify ran a poll of 1,000 UK SMEs in early July, finding that 74.18% of firms think that Brexit will have a slight effect on, no effect on, or even improve the health of their businesses over the coming year. With banks reneging on big deals in the aftermath of Brexit, Nucleus Commercial Finance CEO Chirag Shah recently called Brexit “the best opportunity for us to establish ourselves as a key part in the UK business credit market”. Ergo, were it to run the survey again in a few months’ time, the Chambers of Commerce may well find that alternative finance awareness is on the up.

Nicola Longfield, a director at PayPal, commented on the survey: “As small businesses and their customers face a period of uncertainty, alternative funding routes will be crucial in supporting SMEs that may need to respond to rapid change. I’ve already seen this first hand in the way PayPal Working Capital has helped 14,000 businesses in the UK. We’ve provided £185 million in funding for British small businesses in less than two years since we launched the programme. Thanks to our close relationship with our business customers and knowledge of their sales, we can approve and release funds within minutes. PayPal Working Capital is unique in the flexibility it offers SMEs. It’s a cash advance against future sales, which means if on one day you don't make a sale, you don't pay anything that day.”  

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