grow their loan portfolio by 10 percent, they are more likely to get there by making fewer larger sales than a whole lot of smaller ones, particularly as the time taken to sell the facility to a larger firm relative to a smaller one is still marginal compared to the potential return. Many small businesses have lost faith in the banking sector and are looking at other means of finance. Research firm BDRC recently published a survey that found that bank refusals on borrowing applications/ renegotiations have increased since the 2008.
more competitive funding rates for business while still turning a decent profit on the risk they are taking. They are very interested in investing in new and alternative asset classes to diversify their portfolios and exposures. It was interesting to read the following in the interim report by the Independent Commission on Banking Reform, published in April 2011, “
.....reforms
that The
mere fact that SMEs are turning to other forms of finance – Peer to Peer lending networks, retail bonds even pawnbrokers, suggest there is still a demand for capital. Asset based lenders should seize the opportunity.
Having spoken to many in recent months, I also believe that other non-banking financial firms, those that do not currently compete in the asset based finance arena, can add considerable value. There is a demand to access the market from a variety of firms: hedge funds, family offices, alternative investment advisors, private banks. These firms, more streamline in their operations with lower overheads, can deliver
stabilise the UK banking system may also raise its costs. This may cause some activities to move to non- banks, foreign banks, or capital markets.......... Non- banks may well be better-placed than banks to conduct some financial activities, and limiting the implicit government guarantee for banks may also encourage some activities to move out of the banking system. To the extent that shadow banks can safely remove risk from the banking system, an increased role for them will be positive for financial stability.”
The issue for non-banks is one of sourcing – they have no capability in this area nor in the area of due diligence. Sourcing and relationship management is a heavy cost even to existing participants in the industry and, coupled with consumer perceptions, makes client acquisition far from easy.
“The mere fact that SMEs are turning to other forms of finance – Peer to Peer lending networks, retail bonds even pawnbrokers, suggest there is still a demand for capital. Asset based lenders should seize the opportunity.”
What is the solution? We all have an opinion, here is mine. Fragment the industry value chain. Narrow the focus of firms within the industry to a small set of core capabilities that they can excel at, let others take over the management of marketing, sales and distribution; going beyond the “lifestyle” brokers that proliferate the industry. Put more emphasis on consumer needs in the delivery of financing, make them more comfortable with the solutions provided. Leverage a new breed of innovative services that use technology to deliver massive scalability in terms of clients, services that demonstrate competency in marketing and sales and are driven by volume rather than deal size.
All participants, old and new, supporting
service providers and potentially most importantly, businesses, will win– innovation at the industry level, not just at the product and process level, delivers the greatest rewards.
23 entrepreneurcountry
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