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SME Finance in 2017

What a devil of a year it has been for business confidence. The uncertainty of Brexit, the weakness of government policy after an unnecessary snap election and now increasingly, the real threat of higher interest rates.

While the economy remains fundamentally strong with low unemployment and strong industry investment, the clouds are certainly building on the horizon. Now, more than ever, SMEs should keep an open mind to ensure access to funding over the coming years.

Fintech lending platforms offer a quicker, cheaper and more user-friendly experience but crucially at this time, these platforms will typically employ different methods of assessing credit risk. For example, here at EquipmentConnect our funders will place considerably more emphasis on the asset strength of the equipment being financed vs traditional funders. By considering fintech platforms alongside other alternative funders, SMEs will benefit from dynamic view points and no longer feel exposed to that ‘ride or die’ feeling when applying for funding. 

In September, BDRC Continental published the SME Finance Monitor for Q2 2017. The report provides an overview of how SMEs have reacted to the events that taken place in the last 12 months. 4,507 SMEs were surveyed about past borrowing events and future borrowing intentions.  A question rose to prominence. 

Is Fintech Still Disrupting Traditional Finance?

After considering the report it is clear that despite big budgets and well resourced pools of talent, the banks are still struggling to innovate and improve sufficiently. The appetite for fresh options continues unabated.

When faced with new business opportunities that require funding, only 41% of SMEs said they would speak to their bank.

Large platforms like Funding Circle and most recently RateSetter have gained full FCA authorisation. Furthermore Net Promoter Scores (measuring customer satisfaction) continue to be much stronger within the fintech arena than with traditional funders.

The Fightback:

With the platforms collectively accounting for over 4% of SME finance, banks are now under pressure to react. RBS have claimed much faster and easier funding with ESME (albeit with a typically punchy 12%+ interest rate). Santander and Lloyds are also developing fintech platforms in attempt to retain customers. Ultimately though, the banks will need to radically reform and tackle hurdles such as costly legacy IT, inefficient labour practices and high capital charges if they are to dominate again.

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