The latest SME Finance report from insight agency BDRC brought the heartening news that, by Q4 2017, almost one third of the 130,000 firms interviewed (32%) were aware of P2P lending as a source of alternative finance.
That there was greater awareness among the larger SMEs was perhaps no great surprise, but being aware and doing something about it are two different things. Many smaller businesses have shown – and this latest report confirms – that they are content to live within their own means rather than borrow in pursuit of growth.
The recent report from the British Business Bank painted the same picture; despite P2P lending growing by 50% over the course of 2017, there has been an overall reduction in applications to raise external finance. Indeed, SMEs have been accumulating cash deposits and, in Q2 last year, 26% of SMEs reported holding more than £10k in credit balances.
A separate report from Hitachi Capital Business Finance makes the point that, almost ten years after the banking crisis, 39% of small business start-ups have either raided their personal savings or turned to family members to keep their businesses afloat – rather than approach an institution. This, apparently, is less to do with fear of rejection and more to do with trust.
There was a time, of course, when fear of rejection was the major factor, largely brought about by the attitude of the High Street banks which, despite their protests of innocence, were guilty of taking an inordinately long time to reach loan decisions of any kind – either positive or negative. This has all changed, largely thanks to nimble and accommodating alternative finance providers who have pushed the banks into upping their game.
The report also tells us that more finance is available, from more sources and more loans are being approved than ever before, which is good for businesses and good for the economy – the SME report states that eight in 10 loan applications were successful over the 18 months to end 2017.
For businesses to be considered in their approach to borrowing is no bad thing and nothing more than the lenders are demanding when deciding to extend credit. Yes, as an economy, we want businesses to have the confidence to borrow to fuel growth and improvements in productivity, but equally we don’t want the pot to boil over and lead to a glut of businesses – and emergent lenders - failing.
An efficient credit system has a good number of quality applications, a sufficient level of competition - not so much that everybody gets accommodated somewhere - products tailored to the requirements of the borrower, and a good level of credit acceptance.
The latest data suggests, we might not be too far away.
by Neil Edwards, 4 minute read
by Neil Edwards, 7 minute read