New research conducted by law firm Walker Morris has underlined the scale of the opportunity for alternative lenders as the economic recovery gets underway.
It surveyed c-suite and board-level directors from 500 high growth UK small- and medium-sized enterprises (SMEs) in July of this year and found that more than half of businesses were seeking funding for acquisitions, while 46 per cent were looking to invest in real estate.
With 77 per cent of SMEs unable to secure traditional bank financing, Walker Morris said the need for alternative finance to fuel their expansion was bigger than ever. While the pandemic spurred record lending to SMEs in 2020, hitting £54bn over the first nine months of the year as 1.5 million businesses drew on government-backed loans, the research found that many companies now require additional finance to invest in growth.
However, Walker Morris’ research also discovered that more work needs to be done to reassure SMEs that alternative finance represents a viable option for them. Although two fifths of SMEs had growth plans over the next 12 months, 45 per cent cited concerns about using alternative finance lenders. They include the changing market dynamics and the potential impact on SME customers; unregulated lending; and finally, higher interest rates which were not perceived as competitive against traditional bank lenders.
“These concerns are of course based on SMEs’ impression of alternative lenders, and by no means the reality of alternative finance,” said James Crellin, a director in the finance group at Walker Morris.
“It may sound obvious, but if SME-focused challenger banks and finance providers are able to demonstrate that they offer better products and services than mainstream providers, they have the potential to grow very quickly in a post-Covid world.”