Business Banking & Finance
Small business finance
changing world
in a
By Dr Steve Walker, chief executive of ART Business Loans
A
ccording to many current observers, ‘it has never been a better time to start or grow a business as so many sources of finance are
available.’ I hear this statement quite often these days, but have to say that I believe it is only partly true. As banks have continued to move even further away
from supporting small businesses since the credit crunch, the growth in the number of lenders targeting small businesses has reached dizzying levels. In the last five years triple the number of new lenders entered the market than in the previous five years. There are now so many options for ‘alternative funding’ that it’s hardly surprising that the directors of small businesses, and sometimes not so small businesses, are becoming bemused by the marketplace. So, let me try to shed some light on what is going on. The banks are still the major lenders to small
businesses overall, but not to businesses of all sizes. Micro and early stage businesses are the least likely to be able to meet their needs from the banks. The majority of the new ‘alternative funding sources’
are adopting the same, or in some cases stricter, criteria than the banks. Many of the new lenders target niche markets or rely
on computer credit scoring as their starting point to cut costs. Most filter enquiries online without any meeting or discussions between borrower and lender. Some argue that this is a good thing because it improves the performance of the lender and speed of access for the borrower. It may well do, but at what cost? I would argue that businesses are then missing out on the opportunity to gain advice on their plans and a sounding board for how realistic their forecasts for repayment are. There is evidence that many of the alternative
lenders, like the banks, are moving towards larger deals and further away from risk. Hardly any, in any case, were making funds available for start-up loans. This has become the domain of the Government, with its
programme controlled by the British Business Bank, which offers personal loans of up to £25,000 per individual for businesses up to two years old. If you have an unblemished credit history, this is a good starting place. Find out more at
www.startuploans.co.uk
Accessing business finance I suspect many directors looking for business finance will start with an online search. The problem here is that search engines will throw up providers with the biggest marketing budgets, but not necessarily the most appropriate offer or the best interest rates to suit the circumstances. The following websites are a good starting point:
www.thebusinessfinanceguide.co.uk;
www.accesstofinancegreaterbirmingham.co.uk; or I would recommend seeking the advice of a specialist business finance broker - your local Growth Hub will provide recommendations. The number of short-term lenders with high cost
offerings is increasing and their offer for a short period can be very useful. However, taking these loans on board for a long period can prove to be both unnecessarily expensive and detrimental to the future of a business. Responsible Finance Providers (previously known as
Community Development Finance Institutions) across the UK provide an additional source of finance, lending only after a bank decline, but in many cases lending alongside the banks and other sources of finance. In the West Midlands a number of local RFPs lend between £10,000 and £150,000 and can be found at
www.findingfinance.org.uk The RFPs support businesses that are aiming to
create or preserve jobs and their loans are flexible with no penalty for early repayment. All provide a personal relationship service to businesses. ART Business Loans is a RFP, set up over 21 years ago to provide access to finance for businesses in Birmingham. In the past five years, ART has lent £11.7m to 363 businesses that in turn have supported over 2,300 jobs.
November 2018 CHAMBERLINK 49 Dr Steve Walker
‘The majority of the new ‘alternative funding sources’ are adopting the same, or in some cases stricter, criteria than the banks’
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