New specialist lenders will emerge, focussed on serving niches brilliantly
One of the worse aspects of the UK’s highly concentrated banking system is that large banks take a ‘one-size-fits-all’ approach to their business customers, regardless of size or sector.
How ridiculous that a self-employed hairdresser is treated the same as a haulier with ten staff and five trucks! Over the next few years, we’ll see a plethora of new finance providers serving each business sector with innovative new products.
Already there are specialist lenders targeting construction firms, importers or online retailers, and they’re serving their customers far better than the lumbering banks.
Technology will make getting finance much easier
If a business needs finance quickly, whether it’s a restaurant whose fridge has broken, or an IT firm that has landed a large new contract, it’s appalling how slow and bureaucratic traditional lenders can be.
Fortunately, technology is stepping into the gap, enabling dramatically faster and simpler access to finance. At Funding Options, we enable firms using modern accounting software such as Xero and FreeAgent to quickly build a finance application based on their trading data.
Equally, online sellers can get finance quickly based on their Amazon or eBay accounts, or shops based on their card payment terminals. It’s only a matter of time before banks allow firms to use their own bank account data to access better finance, with the government considering a helpful nudge in this direction.
Crowdfunding and peer-to-peer will find their niches
The extraordinary recent rise of crowdfunding and peer-to-peer lending has been caused by a ‘perfect storm’ of the banks retreating from business lending, and historically low savings rates for investors.
As both of these drivers ease, expect to see alternative finance settle into niches where the ‘wisdom of crowds’ means that groups of investors can make better decisions than faceless bank employees.
Who knows better whether a local high street shop is creditworthy than its loyal customers? Who’s more qualified to fund an innovative new product idea than its early fans?
No return to old-fashioned banking
A common refrain is that we need a return to old-fashioned local bank managers, as typified by Captain Mainwaring in television classic Dad’s Army. Those days are not coming back. However much small firms say they want traditional relationship banking, most are not willing to pay for it.
An often-quoted exception is Swedish bank Handelsbanken, who offer local banking relationships, and lending decisions. What is too often forgotten is that Handelsbanken are very selective about their clients: try asking them for a business bank account if you’re a self-employed plumber!
Despite the negative headlines, the pace of change in business finance means that things will only get better over the next few years. Just don’t expect the traditional banks to lead the charge.
Conrad Ford is the founder of Funding Options, which matches firms to the right finance products and providers. They have featured in the Times, Mail and Guardian, and are members of the Real Business ‘Everline Future 50’.
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