MANY small businesses can now access financing for as little as 9.5 per cent per annum, as competition between alternative lenders and banks drives down the cost of business loans.
New research from business funding platform Funding Xchange has found that 60 per cent of small- and medium-sized enterprises (SMEs) with a “reasonably good credit profile” are able to access unsecured loans for less than 10 per cent per year; less than the costs that many high street banks charge for business overdrafts.
The research came from the first edition of Funding Xchange’s new SME Lending Monitor – set to launch on 7 October – which tracks the lending activity of 40 lenders specialising in small business lending.
According to Funding Xchange, the lower rates represent “a significant fall in the cost of credit for these businesses compared to 2018”.
“I am delighted to see that by bringing transparency to the SME lending market, and at no cost to the SME, competition is driving cost of funding down to lower rates for small business borrowers,” said Katrin Herrling (pictured), co-founder of Funding Xchange.
“As economic conditions are predicted to deteriorate, funding will become a lifeline for many small businesses. As a small business owner, I built Funding Xchange to ensure small business owners can compare offers from bank and non-bank lenders in minutes – enabling business owners to take control of the funding process. We guarantee that Funding Xchange is never more expensive than going direct to a lender.”
Funding Xchange’s analysis found that alternative lenders have reduced their rates to become more competitive to win business with a good credit profile. The growth and maturation of the alternative finance sector has also allowed lenders to offer more competitive rates.
However, Funding Xchange warned that SMEs need to be wary of extra or incremental fees which can be charged by lenders, brokers and some digital platform intermediaries. These fees can increase the cost of credit by as much as ten per cent, Funding Xchange said.