U.K. alternative lender Funding Options is calling big banks out for favoring large corporates over SMEs.
In an article penned for Asset Finance International, Funding Options CEO Conrad Ford said big banks are favoring larger businesses for overdraft loans, leading small and medium-sized firms to struggle.
According to the executive, banks have reduced SME overdraft loans by 37 percent over the last five years. Meanwhile, this type of financing offered to large firms has increased by 25 percent during that time.
"Funding Options estimates that, without access to overdrafts, SMEs have less capital with which to expand current operations, invest in new assets or trade through tough times," the executive said in his article, published Monday (Nov. 21).
With small businesses preparing for a busy holiday season, Ford noted that a lack of overdraft loan availability can be especially challenging. Businesses with irregular income and cash flow, like those dependent on the holiday season for big revenue spikes, can force a company into strenuous financial situations, he wrote.
Companies that need to prepare for the holidays often up their spending while waiting longer to see their invoices settled, the report said. Businesses are also pushing payroll to pay employees before Christmas. Overdrafts are often critical to covering costs amid these cash flow slumps, Ford said.
Alternative finance can be a new opportunity for SMEs that are finding themselves in these situations. Ford pointed to the recently launched Bank Referral Scheme as an initiative that could help small businesses, too. The rule requires traditional banks to refer small businesses to an alternative lender if they have been rejected for a bank loan.
"As banks concentrate on providing overdrafts to large businesses, SMEs have had to look elsewhere to support their short-term funding needs," the executive stated. "The referral scheme will leverage the U.K.'s position as a global leader in FinTech to make sure that SMEs are better able to use the diverse range of funding options available to them," he concluded.