B2B Payments

AltFin’s Inconsistent Path To SMB Adoption

What does small business (SMB) lending look like? It depends on many factors, including one’s location. For example, alternative finance in the U.K. seems to be kicking off, showing evidence of surpassing traditional bank lending at many times. Meanwhile, in the U.S., SMBs are too unfamiliar with alternative finance to turn to online players. In Mexico, small business lending is muted across the board. Explore some of the latest stats behind small business financing below.

In the U.K., $248.9 million was lent to SMBs via alternative lending platforms in Q2, according to the U.K. Peer-to-Peer Finance Association (P2PFA). The P2PFA highlighted that the statistic means net lending to SMBs, via member alternative lending players, surpassed that of high-street banks, which lent about $169.4 million to SMBs during the year’s second quarter. New lending to small firms, among member marketplace lending portals, increased by nearly $130.3 million, the association noted. The data suggests alternative finance is becoming an increasingly important source of funding for small firms, according to the Association’s Director Robert Pettigrew.

In the U.S., 63 percent of SMBs sought a loan for working capital needs last year, including payroll, inventory and supplies, according to new data from S&B Global Market Intelligence. That’s slightly up from 2016 figures, and remains the most common use of financing for small business borrowers. Other increases in 2017 occurred by using a loan to pay down existing debt or to refinance, as well as to upgrade infrastructure. While researchers emphasized the rise of alternative finance  particularly the merchant cash advance  in this space, the data suggests traditional banks retain the lead in SMB finance, largely thanks to their access to more affordable small business financing compared to alternative players. Nearly half of the small business borrowers surveyed said the main reason they haven’t used a digital lender is because they are unfamiliar with them.

In Mexico, 44 percent of small businesses that have been in operation for five years haven’t seen their incomes rise, according to Moody‘s Senior Credit Officer Felipe Carvallo in an interview with Euromoney. The publication shed light on the cash flow challenges of small firms in the country and, according to Carvallo, the statistic highlights a “sense of mediocrity” that prevents entrepreneurs from growing their businesses. It may also relate to a sluggish small business lending market for Mexico: According to Moody’s data, small businesses accounted for just 9.1 percent of all loans in Mexico as of last March equivalent to only 2 percent of total GDP, reports said.

In the U.K., 30 percent of small firms need external financing simply to survive, according to new Liberis data. The small business finance company released new research last week that found “keeping afloat” to be the number-one reason for small businesses to seek financing, more so than to invest in new equipment or to handle additional operating costs. Liberis analysis also highlighted a”perceived reluctance” among traditional financial institutions to invest in “risk and innovation,” forcing small business borrowers to turn elsewhere for funding. Fifty-five percent of small businesses surveyed said they are unable to access funding to grow.

Seven percent of small business owners said they would use a credit card to finance a new business, according to the National Foundation for Credit Counseling’s 2018 Consumer Financial Literacy Survey. U.S. small businesses, instead, first turn to national or community banks, credit unions or online lenders, the research showed in U.S. News reports last week. One quarter of entrepreneurs said they would tap into their own personal funds to start a new enterprise, with analysts noting that professionals typically use a mix of financing sources when first launching their companies.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.