Though today we are seeing a bright business future courtesy of the rapid growth of both current SMEs and in the number of startups, it is important to note that this taste of success is predicated on the ability of SMEs to secure the requisite financial funding in the first place.
Given the Small Business, Employment & Enterprise (SBEE) Act’s most recent legislative measures to force banks to use a dedicated online database to help declined SMEs access alternative means of finance, the role of alternative finance, remains an important one.
It is common knowledge that, as an economy stagnates, mainstream banks’ and lenders’ collective propensity for embracing unsecured risk shrinks, a trend supported by the steady increase in secured lending. In fact, the latest figures from the Asset Based Finance Association support this, showing that asset-based finance has almost doubled to a record £88m in comparison to last year. These insights illustrate perfectly the ever increasing appetite for alternative methods of securing finance.
This increasing appetite for accessibility to financial backing comes as no surprise given that the recent study by the Enterprise Research Centre identified finance as a barrier to growth for 25% of all businesses. It is worth noting that this figure actually rises by 40% for businesses in more rural regions.
Challenger Banks and the SBEE
It is for these reasons that the SBEE plays such a vital role, by forcing mainstream banks to help SMEs secure alternative means of finance with other providers. The UK is set to see many benefits; namely, a more competitive and robust banking sector, increased access to funding for SMEs and, consequently, a growing economy courtesy of the success of SMEs and startups that might have never existed in the absence of the requisite funding.
Despite this measure, the benefits of challenger banks extend far past being a “backup finance option” or medium through which to make the banking sector more competitive; challenger banks offer SMEs value in their own right.
There are many instances where SMEs have been said to prefer to secure finance from challenger banks: a direct result of the specific lending products and the more personalised and bespoke service they receive. This, coupled with the major barriers facing SMEs trying to secure finance, makes challenger banks a thoroughly welcomed support mechanism for the UK’s ambition of becoming the “best place in the world to start and grow a business”.
Whilst this legislation is just one of the many facets of the SBEE’s commitment to optimising SME and start-up growth, it remains a particularly important one. However, the challenges facing smaller businesses extend past financial backing and, therefore, so does the scope of the SBEE’s measures.
To help you better understand these measures and assess the impact these may have on your business, download our detailed infographic by clicking the button below.