A promise to provide “at least £10bn of loans to smaller businesses” in 2016 and a launch of “an online tool offering potential customers a credit decision for loans of up to £30,000 in less than two minutes” should help more small businesses access cheaper finance faster.However, HSBC is not creating a dedicated fund or ring-fencing this cash in any way. Neither it is a commitment to lend an additional £10bn to SMEs in 2016. It is a good PR move, making headlines across the UK, but this new pledge can more accurately be described as a “top-up” of an existing £8bn funding package first unveiled last year. On the other hand, a two-minute credit decision is something potentially quite exciting. It is a move that no doubt aims to help the bank compete with nimbler alternative lenders, and has certainly raised a few eyebrows in the industry. Introducing such a fast underwriting is an extremely ambitious target for any lender, let alone for a high street bank that can traditionally take weeks to arrive at a decision. It sounds even more impressive when coupled with the bank’s claim to “approve 89 per cent of SME lending applications.” For operators in the SME lending space, it is well known that such high acceptance rates are based on applications formally submitted to a bank’s Credit Committee (or other relevant authorities). It does not necessarily mean that the overwhelming majority of SMEs actually receive the funds. Indeed, many SME owners are discouraged from applying at much earlier stages. Research by the Department for Business Innovation and Skills and HM Treasury revealed that “in the case of first time SME borrowers the rejection rate is around 50 per cent – a proportion of these are viable and are rejected simply because they don’t meet the risk profiles of the largest banks.” But why do around half of SMEs not meet the risk profiles of the largest banks?
The answer is surprisingly simple. Banks cannot tolerate a significant proportion of loans going into default, and are not prepared to charge higher rates to compensate for higher losses.
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They’ve been accused of poor interest rates and snubbing businesses, but you can always rely on banks for great advertisements – here are ten of the best.Max Chmyshuk is the founder and MD of flexible loan provider, Fleximize. Launched in 2014 as the UK’s first revenue-based finance provider, Fleximize offers small business loans from £500 to over £1m, and has supported a wide range of SMEs across the UK.
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