Why UK SMEs May Say ‘No’ To Banks

While latest findings reveal an uptick in small business lending options among major banks, a recent survey from YouGov indicates that most small businesses aren’t getting the help they need from big banks to get working capital.

The survey reveals that U.K. small business owners aren’t getting the support they believe banks can provide, and taking into account the online business sentiment from eBay, the survey suggests that there is a “broken bond” with big banks in the region. This has led to the trend that’s been seen across the industry — which is SMEs leaving the bank behind for alternative financing options.

Tanya Lawler, Vice President of eBay in the U.K., said she believes as the economy bounces back, that more lending schemes need to be implemented to help connect businesses to capital to help grow their options — which means looking outside of banks. Regardless of the disconnect that may be occurring, she indicated that businesses remain upbeat about the next year. The survey showed that 65 percent of businesses didn’t believe the banks were helping SMEs as they should and 60 percent found it more difficult to secure funding from banks.

“Small businesses are increasingly confident about their prospects, with two thirds of those that we’ve spoken to predicting an increase in sales over the next 12 months,” Lawler said in an interview. “However, this confidence in the economy is not translating into confidence in the banks, as reflected by the high proportion of SMEs no longer reliant on banks for funding. We’d like to see more done to connect viable SMEs with alternative sources of funding that can spur sustainable growth.”

Figures from the survey indicated that roughly two-thirds of businesses said banks aren’t working to provide financing options as they should with banks; 60 percent of those surveyed said they believe it’s gotten harder to secure a line of credit than it was in 2010.

So what are the U.K. small business leaders doing to make up for the disconnect with banks? They’re turning toward the alternative lending scene. As they are quickly realizing that banks aren’t willing to bank many SMEs plans, they are looking beyond the traditional lending options. With more financing and investors willing to put a chance on small businesses, some say they don’t believe they need the banks anymore.

According to one NESTA figure from 2014, it’s estimated that the alternative lending providers gave £1.74 billion (about $2.58 billion USD) to roughly 7,000 SMEs. During a period where SMEs felt like it was difficult to work with banks to get the needed capital, the alternative lending market began to grow. Trust also had a large part to do with that, the survey revealed.

The YouGov eBay survey indicated that SMEs’ trust in banks also remains low, as roughly a third indicated they simply don’t trust the terms that the bank is willing to provide them. Even among the largest banks, this seemed to be the case for those surveyed.

And while the survey shows that a majority of SMEs aren’t pleased with the traditional bank financing options, other industry data suggests that the influx of alternative lending options into the market has also weighed down the decision making for small business owners when it comes to seeking out which funding option is best.

Recent survey data from the Funding Centre — the content-led alternative finance aggregator — shows that the U.K. alternative finance space is “growing at a dramatic rate,” which has created a crowded platform that has created a tedious process for SMEs to sort through when looking for a lending. The P2P and P2B lending sector makes up just over half of the alternative lending space with its 56 platforms, but, according to the Funding Centre’s data, alternative finance providers seem to be sprouting up at a rate that’s hard to keep up with. In total, the Funding Centre noted 108 alternative finance platforms.

“The alternative finance space has grown at a phenomenal rate in the last year but the sheer number of platforms is now daunting, as this survey reveals,” wrote Funding Centre founder David Stevenson. “Being honest even a well-informed business could end up spending days just researching all the alternatives online and then figuring out which product works for them.”

At a time when SMEs are looking toward alternative lenders to keep them afloat — particularly because of small businesses that rely on the funding to make up for late payments from buyers — the steady flow of capital is needed to keep their businesses functioning. And with the breadth of choices overwhelming many SMEs, having too many options that weigh down company decision makers when it comes to knowing what route is the best option may be hindering the SME alternative lending process.

Still, having too many options may be better than no options. Or, alternatively, having the banks as their only option — at least that’s what SMEs have to say, based on the recent survey data about the lending business.