Younger businesses most likely to pick alternative lenders

Asset-light entrepreneurs are avoiding bank borrowing.

The majority of business decision-makers under 35 (65%) would choose alternative sources of funding for their company, according to new research from SME lender Thincats.

It’s not just the age of the decision-maker, the age of the business also has an impact, with 71% of companies over 35 years old saying they would call on their bank as the first lender of choice—compared to 32% of firms less than 10 years old picking their bank.

Sectors like IT, telecoms and marketing are among those most likely to pick alternative lending options over their banks.

One explanation for the stark difference between younger and older businesses is the reliance of traditional high-street bank lenders focusing on asset-backed financing requiring companies to provide collateral, which many newer, especially digital businesses, might not have.

Alternative lenders meanwhile might model their risk around metrics like a firm’s historic cash-flow generation, or use a director’s personal guarantee to spread the risk.

Thincats surveyed 512 UK SMEs for the research, targeting companies with between 10 and 249 employees.

Damon Walford, Thincats’ Chief Development Officer said, “It’s encouraging to see that smart minded entrepreneurs are switching to the growing number of non-bank lending alternatives.”