The financial crisis of 2007–2008 is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s and caused the worst economic recession in recent times. The impact on UK SMEs has been significant with the mainstream banks not assisting in their attempts to both survive and grow during the economic crisis.
Economic growth remains weak and is barely improving, the Confederation of British Industry warned earlier this year that the UK economy will shift down a gear and risks remaining in the slow lane because of Brexit, noting it expected the growth rate for the British economy to slow to 1.4%, from 1.8% last year. They then forecast the rate of GDP growth to fall further still, to 1.3% next year, as the UK leaves the EU.
During the period since 2008 the UK Government has induced and incentivised the UK mainstream banks to support businesses, both large and small, but to no avail. The mainstream banks have placed themselves at forefront of their growth and this has resulted in UK businesses having little trust or faith in these financial institutions.
In recent times there has been a great push by the UK Government to encourage the mainstream banks to support UK business and we have witnessed the introduction of the Bank Referral Scheme. The scheme was created by the Small Business, Enterprise and Employment Act 2015 to allow the UK Government to track businesses and their requests for business finance. The scheme was launched in November 2016 and after more than two years of delays, the Sunday Times reported in 2017 that since the launch, the scheme has seen low numbers of referrals. Of the businesses which have been declined by the high street banks, less than 24 per cent have been referred to the Designated Platforms.
So what has this meant for the Alternative Finance sector?
The Alternative Finance sector has seen significant growth over the last 10 years across both the UK and Europe and the forecasts are that this will long continue.
The Cambridge Centre for Alternative Finance (CCAF) stated the market was worth €7.7bn by the end of 2016, the most recent period for which data is available, with €5.6bn of that total accounted for by the UK and looking ahead the CCAF predicts further strong growth from the industry.
The Federation of Small Business (FSB) notes there was a record 5.7 million private sector businesses at the start of 2017, is an increase of 197,000 since 2016, and 2.2 million more than in 2000. They also note the number of employing businesses increased by 41,000 (+3%) since 2016, and the number of non-employing businesses by 155,000 (+4%).
Further statistics from the FSB note that small businesses accounted for 99.3% of all private sector businesses at the start of 2017 and 99.9% were small or medium-sized (SMEs). Total employment in SMEs was 16.1 million; 60% of all private sector employment in the UK and the combined annual turnover of SMEs was £1.9 trillion, 51% of all private sector turnover in the UK.
When you consider these figures it makes you wonder why the banks are reluctant to lend to SMEs, however, it also explains why and how the Alternative Finance sector has grown so significantly.
Many UK SMEs are now savvy to the bank’s behaviour and have educated themselves as to the finance options available to them within the Alternative Finance sector. There are many different forms of finance (check out our post Navigating the myriad options in the world of Alternative Finance) and players in the marketplace.
The Alternative Finance market offer SMEs a real alternative to the mainstream banks, with the ability to actually listen to their customer’s needs and provide the time and expertise that is required to provide them with the options that best suit their needs. The mainstream banks appear to no longer be able to offer that one to one service, you can longer sit with an individual to discuss your needs, your local branch probably no longer exists and the 20 different options to press when you call them leads to frustration and disappointment. If you do manage to speak with someone who can help, the decision process can take weeks.
An alternative lender is there to listen, often giving a decision within minutes or hours, taking a more flexible approach to their lending criteria.
The Association of Alternative Business Finance is an advocate for the sector and is committed to campaigning for best practice in financial services through its comprehensive principles which provide a framework for compliance and customer redress.
The principles are :
- Transparency – Provide transparent information that allows customers to make educated financial decisions
- Responsibility – Provide financing to businesses that can reasonably demonstrate
the affordability of their financial obligations
- Fairness – Be truthful and fair in dealings with customers]
- Security – Ensure all reasonable steps are taken to protect sensitive information and the customer from fraud and other malicious misuse of their information
At Just Cashflow our customers often tell us their stories of how their bank was unable to assist with their financial needs, but by talking with the team at Just Cashflow they have been able to grow and develop their businesses with peace of mind they have the support of a responsible alternative lender. Check out our customer case studies https://www.just-cashflow.com/who/who-have-we-funded