Just Cash Flow: Confidence in alternative finance business remains

Confidence in alternative finance business remains

Recently there have been a lot of reports/data on the state of the alternative lending market in the UK and the Bridging & Commercial Distributor headline 'Alternative finance business plunges' certainly caught my attention.

This hasn't been our experience, as over the 12-month period in question (1st July 2015 to 30th June 2016), there has continued to be a strong demand for the finance facilities we provide and we even saw a post-Brexit referendum increase that has continued throughout September. 

I was able to reconcile this as my view is that the rapid rise in peer-to-peer lending was always going to be difficult to maintain and the high volumes of business generated by this particular form of alternative lending would inevitably skew any data that looked at the entire alternative sector. 

Historical data is useful because it allows you to look forward, make predictions and be adaptable. My thinking was helped and informed by an article the same day from Mike Conroy, British Bankers' Association (BBA) executive director of corporate and commercial banking, that drew on two other data sources ­ the BBA's latest quarterly SME data and the half yearly SME Finance Monitor from BDRC Continental. 

From these reports, it was clear that finance applications from smaller-sized businesses had fallen and there was an increasing trend for businesses to increase cash reserves. Undoubtedly, as Mike concludes, the Brexit referendum has created economic uncertainty and exchange rate volatility. Neither of these are conducive for growth and investment planning. However, he highlighted that over the past six years a raft of initiatives has been put in place to help SMEs access the finance they need.

Inevitably, as the Brexit negotiations take time, there will be a continuing raft of headlines that have the potential to dent business confidence. 

'Confidence' is the key word and the reports highlight that SME perceptions of obtaining bank finance remain lower than the reality, and interestingly, those businesses that are not seeking finance have greater confidence that banks would approve applications than those that are actually considering applying.

This last piece of information is key to where I believe the focus of traditional banks and alternative lenders should be. After the 2008 financial crisis, small businesses struggled to get the finance they needed, but today, traditional banks have a greater appetitive to lend to SMEs and we have a well-established alternative lending sector. 

The challenge is to educate businesses about the wide variety of finance facilities available and to give businesses the confidence that all parties are working together to help UK businesses invest and grow.

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