You can bank on the alternative finance industry when it comes to competition and choice
The recent announcement of a probe into competition amongst our high street banks has had mixed reviews. Is there any argument though when the “Big Four” provide 80% of small business lending?
In a move that is bound to cause some jitters to the share prices of our high street banks it appears there is now going to be a serious look at how they do business when it comes to current accounts and SME relationships. The results could see an even larger break-up of some of the well-known names.
Tell us something we don’t know
It seems The Competition and Markets Authority has suddenly stepped into line with what most SME owners have thought for years by stating that the industry “is not functioning in the way we would expect of effective competitive markets”. It does make one wonder how the old Competition Commission viewed customer choice in years gone by when they allowed Williams & Glyn and Nat West to become part of RBS whilst the TSB, Halifax and Bank of Scotland eventually found a home (albeit slightly distressed) at Lloyds.
We have of course already seen some break ups such as the good old TSB splitting from Lloyds whilst RBS is duty bound to sell off the Williams & Glyn brand, and along with it a sizeable SME portfolio, by 2017. There have also been a number of new “Challenger” banks created making small inroads into the market.
What is interesting however, and no doubt the catalyst for the probe, is the figures relating to customer satisfaction. Those big banks that regularly top the poor service league have suffered no significant loss of market share whilst those with glowing references have hardly managed to scratch the surface. At a time when switching banks is supposed to be a simple procedure it does seem rather odd.
Real choice
When it comes to business lending there has of course been a much wider choice for many years. Whilst it might not have been pointed out to business customers by their bank manager, as he or she politely declined a loan application, asset based lending provides a real alternative to the traditional products and is offered by a growing number of players most of which are independent of any bank.
Factoring and Invoice Discounting currently funds over £18bn of working capital to UK businesses and is offered by people who really want to do business. With a personal approach, and real people taking a proper look at what makes a company tick, the ethos harks back to the good old days of ledger book banking.
Tough choice
Such a wide choice does of course bring its own problems. Many valuable hours can be lost pouring over websites and brochures and completing application forms. Most SME owners are also unlikely to be aware of the appetite of various alternative funders when it comes to business size or sector.
For those businesses where the need is great but time is limited the search can be professionally narrowed down and managed by an experienced broker who has the ear of the industry and is fully up to date with new products, new entrants to the market and current likes and dislikes. It makes complete business sense to let someone else do the legwork and make sure any facility is as tailored as it can possibly be to the cashflow requirements of the company.
After all, it costs nothing and the end result will still provide a selection of willing lenders really competing for the business.
By Steve Leeves