It’s mind-boggling to think that only a decade ago the government was forced to bring banks back from the brink. A lot has changed since the financial crisis a decade ago, and perhaps the biggest change in the UK is in lending.
Unsurprisingly, the bailouts of the big banks by British taxpayers prompted tighter controls on the amount of money being lent out, both to individuals and to businesses.
While these controls are designed to improve the financial system, we often hear of how painstakingly slow the traditional banks have become when responding to loan applications, not to mention processing them.
And of course, the entire financial system has come under increasing scrutiny as companies are forced to provide far more information about their business plans in order to be considered for a loan and as a result, the past 10 years have seen many a burgeoning business, struggle to get the funding they need to kick-start or grow their companies. Higher barriers to entry also mean that businesses frequently get rejected for loans.
Andy Davies, Group Sales Director at LDF Group comments: “businesses have a lot more choice in the marketplace when it comes to access to finance, and that is something that we have seen grow significantly over recent years. Long gone are the days when everything would hinge exclusively on your bank. For small business owners, it’s become more about simplicity, speed and service. When you are running a business, these are vital requirements.”
But finance has been, and will always be, a crucial component to businesses. As a result, we are seeing a growing number of so-called alternative finance providers bringing new offerings to the table in a bid to plug the gap left by the big banks.
These new lenders come in many guises, from challenger banks to peer-to-peer lenders. Business finance groups have also become commonplace.
While these business models resemble those used by the banks, new lenders often use tech to speed up the time it takes to process loan applications. It could even be argued that some companies – such as Zopa – are transforming into banks by applying for banking licences. And at the same time, the big banks are adopting better technology to improve their clunky legacy systems. Perhaps over time, the various corners of the lending world will become less defined.
Alternative lenders have been developing a wider range of products, within the business finance sphere this has given rise to a new wave of opportunity, with many businesses now choosing to spread the cost of many essential cash flow burdens such as taxation and VAT, spreading the cost of equipment investment not to mention a significant rise in new products that are specifically designed to support growth. Finance is no longer something that struggling businesses would entertain, preserving cash flow makes good business sense.
Using these products to manage cashflow is becoming more accepted among the business community. It’s likely that as time goes on, the scepticism around alternative forms of lending will die out as we begin to fully appreciate how much these new-age lenders have propped up businesses, and propped up the economy in the process.