Fintechs taking large chunk of SME lending sector

Almost half of UK SMEs (49%) would seek financing from non-bank lenders as they begin to better understand the business models of companies in this space, including fintechs.

This is according to a survey of 2000 directors at UK SMEs, carried out by peer to peer lender Growth Street.

Fintechs are emerging offering business loans through digital platforms which provide quick decisions. For example, peer-to-peer lending platforms, including Zopa and Funding Circle, enable independent lenders and borrowers to be matched up quickly. Peer to Peer has been around a while now in fintech terms and it is becoming mainstream as a result of the success of the likes of Zopa.

And it is not just about getting quick decisions on  a loan application. I interviewed a Leeds based fintech known as Rebuilding Society recently.  It is a peer to peer lender itself generating loans for SMEs, and as a tech firm it also makes money selling tech to organisations setting up peer to peer lending services.

According to founder Dan Rajkumar:  “When you are a business and you borrow from a bank that agreement is with the bank and it can call it in at any time. They also take quite a high margin with low savings rates,” explained Rajkumar.  “I created Rebuilding Society to give everyone a better deal.”

Another advantage of a company like Rebuilding Society is businesses can borrow form people they want to.  Rather than   just borrow from big banks and see their money channeled through London borrowers can get loans from local businesses or even from their own employees so interest flows to them rather than big banks.

Greg Carter, CEO Growth Street, who carried out the research: “The fact that nearly half of British SMEs have looked beyond the banks for business finance is a symptom of profound changes affecting the financial services ecosystem. As more and more SMEs realise that there are real alternatives to the traditional banks’ offerings, I expect this figure to keep rising.

“I don’t think business owners want the moon on a stick: they want fast, flexible access to finance, and they want a combination of cutting-edge technology and empathetic, understanding relationship management. The firms that bring this combination to market will prove crucial in providing SMEs with the best finance options available to them. I think non-bank funding options have a central role to play in the future of UK business banking.”

This is not lost on traditional banks. For example Nat west bank launched a fintech of its own to target the SME sector. Esme Loans, as it is known, promises to cut the time it takes to apply for a loan to 10 minutes for SMEs. It offers SMEs loans of up to £150,000 and makes it easier to apply for them by using the latest technology, including application programming interfaces (APIs).

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