Building an army in the business loan battle

Anders la Cour, co-founder and chief executive officer of Saxo Payments Banking Circle, looks into the SME fight for finance, and how financial utilities are helping banks and FinTechs call a cease-fire

By Anders la Cour | 4 June 2018

Since the financial crash of 2008, banks have been reluctant to lend, and SMEs have had to jump through hoop after hoop, fighting to obtain finance. Whether they need cash to help buy stock or essential equipment, or to expand into new markets, at some point almost all SMEs will look for extra finance beyond their usual cashflow.

However, today’s tough banking landscape means that this is a battle which will defeat huge numbers of those few SMEs who are up for the challenge. Indeed, there has been a shift in attitudes towards business loans - the SME Finance Monitor recently reported that just one in three SMEs are willing to borrow money to grow the business.

Accounting for 99.9% of UK businesses, SMEs play a crucial and highly valuable role in the economy. As such, this lack of willingness to borrow could have serious implications. Thankfully, new technology and new regulations have allowed new allies to step in to empower businesses.

Assessing the opponents

To identify the pain points of obtaining business finance, we recently commissioned a study with heads of UK SMEs working in the online space. We spoke to over 500 financial decision makers, directors and above, to build a full picture of the current lending landscape.*

The latest Banking Circle insight paper, ‘The epic business loan battle: SMEs fighting for finance’, exposes the real obstacles faced by small and medium businesses in obtaining finance from traditional lenders, and how pioneering innovative solutions are already beginning to change the entire business lending landscape.

92.5% of respondents have accessed business finance within the past five years, and for more than half (52%) it was to purchase equipment for the business. 35% borrowed money to help them buy stock and 28% to help with expansion into new markets.

Without access to finance, these businesses would face real difficulties.

A quarter of respondents would have to let employees go. 30% of SMEs would have to reduce prices, and 39% would be unable to buy necessary business equipment. Extra cash does not just make things easier, it ensures businesses keep employees in jobs, remain competitive in a fast-paced market, and most importantly, it ensures businesses can survive long-term.

90% of start-ups don’t make it to their fourth anniversary. Fast, affordable, flexible access to finance can change that.

Altering the battlefield

A business loan application in today’s financial landscape is no longer a simple request, certain to be granted. Instead it is more often than not a battle to get extra cash the business needs to succeed or expand. This challenge is felt most strongly by small firms with less flexibility in their cashflow.

When cashflow doesn’t cover business costs, whether those are day-to-day outlays or the cost of expansion, applying for additional finance is usually the only option. However, smaller firms in particular struggle with the current options available from traditional lenders. High fees and interest rates go hand-in-hand with traditional business loans, and putting off huge numbers of SMEs from accessing the finance they need to succeed.

SMEs need loans to be cost-effective, account management to be simple and accessible, and repayment terms to fit around their business. A new generation of innovative, affordable, forward-thinking lenders, able to move quickly without legacy systems holding them back, are entering the market to meet this need. And it seems the marketplace is open to these new offerings.

58% of our respondents said they would approach a non-bank for a loan, if it offered low interest rates, and 44% would do so for lower arrangement fees. 25% would be attracted to a non-bank by simple online account management.

New allies joining the fight

Banks and fintechs wishing to succeed in the digital era need to focus their time and resources on improving and maintaining the all-important customer relationship. This leaves little room for investing in developing and delivering new solutions – solutions which would meet the current and future needs of SMEs. However, financial institutions must do all they can to keep up, or they risk defeat.

Financial utilities like Banking Circle are, therefore, stepping in to provide banks and fintech businesses with the capability to offer their merchant customers better solutions. Transparent, easy-to-manage, flexible, low-cost lending solutions.

We are already seeing banks and FinTechs accepting a move towards an ecosystem model, working in partnership with third-party allies able to deploy tailored solutions on their behalf and in their name. This brings huge benefits to bank and FinTech customers without the usual significant investment required to build and deploy these solutions in-house.

With increasing competition and customer expectations, embracing this ecosystem model is the only way for financial institutions to prosper long-term.

With banks and FinTechs working together with an army of specialist providers, the battle can be won and businesses can access the cash essential for expansion and profitability.

The full white paper, 'The epic business loan battle: SMEs fighting for finance', can be downloaded here.

*Research conducted by Censuswide, with 250 financial decision makers and 250 directors and above in SMEs that have an online presence in the UK between Mar 22-29, 2018. Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles.

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