Brokers call for more information from alternative lenders to attract SMEs
Alternative lenders need to express information more clearly to commercial borrowers, according to brokers surveyed by law firm Walker Morris.
The poll found that almost half (40 per cent) of UK small- and medium-sized enterprises (SME) were seeking finance for growth, yet nearly half of those, 45 per cent, were worried about using alternative providers despite being refused by traditional lenders.
More than 90 per cent of commercial finance brokers surveyed said there is scope for alternative lenders to produce better material to support and educate SMEs through the early stages of the borrowing process.
More than three quarters (77 per cent) of businesses surveyed in 2021 revealed that they were unable to secure traditional bank financing and this struggle continues.
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According to the Finance & Leasing Association (FLA), approximately 36 per cent of the £15.9bn loaned to SMEs in the UK in 2020 came from non-bank providers, demonstrating a growing appetite in the market to secure funding from alternative finance.
However, according to the latest research carried out by Walker Morris, finance brokers have a long list of demands to lenders.
A significant number of respondents (25 per cent) stated that they wanted more information on the legal and regulatory aspects of alternative finance.
Full disclosure on rates and cost of lending is the chief concern of nearly a fifth (18 per cent) of respondents, while 23 per cent also wanted better additional information on the general terms and conditions of funding.
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“Independents are playing an increasingly important role in the economy by providing funding where traditional banks might be more cautious particularly in the face of strong economic headwinds,” James Crellin, director in the finance group at Walker Morris, said.
“It is vital, though, that lenders provide more and better information for SMEs if they are to become the lender of choice. Lenders who are able to provide additional information, access to legal and regulatory advice, and create a more simple process will become increasingly favoured by SMEs.”
A streamlined process came out on top as the number one reason for matching SME to lender for 21 per cent of brokers, along with the suitability of the product offering overall (21 per cent).
Perhaps surprisingly, the speed of finance delivery is not the most important factor. More than half of respondents said the main reason SMEs do not choose certain finance providers is because the cost of lending is too high (53 per cent), underlining how more information about this may be helpful in engaging more of them in the early stages.
“Alternative lenders need to deliver more information on all these things to help brokers and become the best choice for SMEs, but perhaps a more efficient, streamlined, transparent process is the biggest piece of the puzzle to focus on to stand out in the market,” Crellin continued. “In short, alternative lenders need to arm SMEs with all the vital facts they need.”
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