Diversifying the supply of SME finance
Finance brokers and business owners, please note.
I came upon this article recently. It is significant in terms of what is happening in Britain in relation to diversifying opportunities for Small to Medium Enterprises to access finance for sensible proposals which do not fit their bank’s criteria, and the opportunities for you that may arise.
Is it the job of Government to innovatively disrupt the marketplace in the same manner as the current Fintech revolution seeks to do? Probably not. But is it necessary? Probably.
I suggest you read the whole article for discussion with your representative Groups and/or Aggregators.
This innovative Government approach has been initiated through the Department of Business Innovation and Skills, HM Treasury. The link ishttps://www.gov.uk/government/consultations/sme-finance-help-to-match-smes-rejected-for-finance-with-alternative-lenders/sme-finance-help-to-match-smes-rejected-for-finance-with-alternative-lenders
Why am I interested? Because I provide one of the alternative sources of finance mentioned. Direct private first and second mortgage lending.
The article is dated 18 December, 2014, and the following entitled “Context”, sets out the background. In my view, this is a conversation we should be having.
“0.1Context
Budget 2014 announced that the government will consult on whether and if so, how, to take legislative action to help match small and medium sized enterprises (SMEs) that have been rejected for loans with challenger banks and alternative finance providers who are looking to offer finance. The government believes that positive action in this area would be an important step to improve access to finance, and would encourage a more competitive banking sector. The consultation complements proposals, announced by the government at Autumn Statement 2013, to require banks to share information on their SME customers with other lenders through Credit Reference Agencies.
At present the largest four banks account for over 80% of UK SMEs’ main banking relationships. Many SMEs only approach the largest banks when seeking finance. Although a large number of these applications are rejected - in the case of first time SME borrowers the rejection rate is around 50% - a proportion of these are viable and are rejected simply because they don’t meet the risk profiles of the largest banks. There are often challenger banks and alternative finance providers with different business models that may be willing to lend to these SMEs.
Although the largest banks will sometimes refer these SMEs on (e.g. to brokers), in many cases challenger banks and other providers of finance are unable to offer finance as they are not aware of their existence and the SMEs are not aware of the existence of these alternative sources of finance. This is a market failure, of imperfect information, resulting in SMEs that are viable loan propositions not receiving the finance they need.
Some attempts have been made to address this market failure, but they are limited in scope and have been slow in achieving results. The government is committed to helping small businesses access finance, and believes that more can and should be done. The subject of this consultation is whether or not to address this market failure through a much more ambitious government intervention that would increase the amount of information that is available to challenger banks and other providers of finance about businesses seeking finance, but which are rejected for finance by the major banks. The consultation asks whether this government intervention is needed and, if so, for views on how the government should deliver this, including via a preferred option of referral to private sector platforms.”
Note re “Fintech” - wikipedia
Financial technology, also known as FinTech, is a line of business based on using software to provide financial services. Financial technology companies are generally startups founded with the purpose of disrupting incumbent financial systems and corporations that rely less on software.[1]
Global investment in financial technology more than tripled to $4 billion in 2013 from $930 million in 2008.[2] The nascent financial technology industry has seen rapid growth over the last few years, according to the office of the Mayor of London. Forty percent of London's workforce is employed in financial and technology services.[3]Some of the better-known FinTech companies in London include FundingCircle, Nutmeg and TransferWise.
In the United States, there are a numerous FinTech startups, including several of the best-known companies, such as Betterment, Lending Club, Prosper, SoFi, Square, and Stripe (along with others, such as LOYAL3, MaxMyInterest, Robinhood and Wealthfront).
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