ThinCats: Younger SMEs shift to alternative finance
NEWLY established small and medium enterprises (SMEs) in the UK are increasingly looking to alternative financing to meet their funding needs, new research has revealed
According to the survey from business lender ThinCats, only 31 per cent of SMEs under 10 years old will approach their bank first when seeking funding, compared to 61 per cent for businesses established between 10 and 20 years ago. This figure rises to 71 per cent among businesses which have been established for 35 years or more.
Damon Walford, ThinCats chief development officer, commented that the survey “shows that for large, long established businesses with significant tangible assets, a traditional bank is still their first port of call.
“However, younger businesses are waking up to the benefits of looking beyond their bank. This may be because they are more open to trying new things, although we suspect it is more about the service-based nature of many of these modern economy businesses which do not fit the asset-reliant models of the traditional lenders.”
Read more: ThinCats reaches £500m lending milestone
Almost one quarter (22 per cent) of these younger businesses said that they would pick an alternative finance platform to raise funding, compared with just four per cent of the oldest SMEs.
An analysis by ThinCats suggested that many businesses in the modern economy lack tangible assets as collateral, and this may explain the shift towards alternative finance options.
“Traditionally, high-street bank lending focuses on asset-backed financing that requires businesses to provide a physical asset (such as equipment or property) as collateral for a bank loan,” the lender said.
“Yet, for many businesses in the modern economy, with few tangible assets, the traditional lending model does not align with how their business actually works: whilst it may be highly cash generative, it is penalised for having insufficient physical assets.”
According to ThinCats, at least 70 per cent of the deals it funds are based on cash flow rather than hard assets.
“Cash flow lending is a solution for thousands of SMEs, where lenders look at the underlying cash flow generated by the business,” Walford added.
“For businesses who are service-focused like IT, telecoms and marketing companies it works perfectly. It’s critical that UK entrepreneurs can access the modern funding solutions needed to support a modern economy.”