Uncertain intermediaries

71% not confident advising SMEs on challenger banking products



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As more challenger banks than ever before emerge to compete for a stake in the UK market, some brokers appear to have been left in the dark over the new products on offer to small businesses.

A recent poll conducted by Bridging & Commercial found that 71% of professionals were not confident advising SME clients on specialist or challenger bank products.

And with at least 15 more banks potentially coming to market, the amount of products SMEs are missing out on due to a lack of awareness could grow ever higher.

Bridging & Commercial poll

Although the government has made attempts to improve competition in the sector and reduce barriers to entry for new players, Joel Perlman, co-founder of OakNorth, claimed there was still a huge amount of inertia in the market.

“…It’s much easier to have a conversation about institutions that a business is familiar with, rather than having to first get them up to speed on the institution, and then discuss what it is that they’re looking for.

“However, it’s important that intermediaries take the time to give the SMEs they’re advising a whole of market view, so that they’re aware of all of their options before making a decision.

“Challenger [and] specialist banks are often better placed to offer more competitive products and services than larger institutions due to the lack of IT legacy and costs associated with bricks and mortar.”

‘Banking products and services are notoriously difficult to compare’

The Federation of Small Businesses (FSB) has estimated that the four largest high street banks currently retain around 80% of the entire business finance market.

“This has had serious impacts on both the high cost of credit as well as reduced service quality,” explained Ben Baruch, policy adviser for finance, tax and economy at the FSB.

“More importantly, it has implications towards the ability of businesses to find the right sort of finance to match their specific needs.”

Despite Ben’s assertions, Philip White, commercial director at Wesleyan Bank, claimed that newer or more niche banks had become in vogue since the economic downturn.

“Pre-financial crisis, funding was widely available from more traditional sources and ‘specialist’ banks were considered to be just that.

“…Post-financial crisis, specialist and challenger banks have started to fill the funding gap to SMEs as high street lenders have become more risk averse.”

Nevertheless, Ben warned that only a small proportion of businesses actively shop around when looking to borrow.

“This is partly because banking products and services are notoriously difficult to compare in what remains a complex market.

“However, small businesses should not assume they’ll always get the best deal from established high street banks – indeed many challenger banks offer bespoke banking services which are definitely worth considering.”

Canary Wharf
Many SMEs continue to bank with the UK’s largest banking institutions

As a possible solution to this lack of familiarity with new banks, Colin Bell, managing director of commercial mortgages at Hampshire Trust Bank, urged intermediaries to take advantage of master brokers’ expertise.

“While the products being offered may be familiar in structure, brokers may have less background knowledge on the providers out there and therefore feel less confident in recommending their services.

“Also, the specialist lenders tend to attract more complicated and specialist cases, such as those from large portfolio investors in corporate structures and, therefore, it may often be the case specifics or borrower structures that are complex.”

Regardless of how brokers choose to familiarise themselves with these products, Joel hoped that more SME clients would be given the opportunity to take advantage of challenger banks’ flexibility and speed.

“It’d be a shame for a business owner to miss out on this, just because the advice they received focused on larger institutions.”

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