35% of SMEs Refused Loans by ‘The Big 4’

The economic crisis was a wake up call for key financial players the world over. Ever since, lenders have been keener than ever to seek out higher returns on investments, and borrowers have been more determined to get better access to reliable credit, and, of course, lower interest rates.

However, the banks, quite frankly, since being strapped with burdensome regulations, have not been able to meet these demands. And this has opened up room for growth in alternative finance markets, and peer-to-peer (P2P) lending is one of those that has capitalised greatly.

The P2P lending industry loaned over £1.2 billion last year, showing a significant growth of users in the sector – 90% – whilst the number of lenders also grew by one third.

These figures – which also indicate that the P2P lending sector has now lent a total of more than £2.1 billion – were produced by the Peer-To-Peer Finance Association (P2PFA).

Chair of P2PFA, Christine Farnish, said: “These figures demonstrate the growing impact peer-to-peer lending is having on the market. Last year showed continued and solid growth in the consumer market and a significant increase in lending flow to businesses. Invoice finance and peer-to-peer finance within the property market are also growing.”

One of the most attractive offerings of alternative finance platforms is the quick turnaround that they can often provide. John Allan, the National Chairman for the FSB (Federation of Small Businesses), said: “In some instances, businesses can get access to finance within two days, which is much quicker than the banks. Getting access in that time can be the difference between grabbing a growth opportunity, and losing it.”

However, at present it is still the case that many businesses instinctively turn to their bank for finance. But, as Allan goes on to note:

“Around 35% of SMEs are refused loans by the ‘big four’ and many do not apply again […]. Not every business suits a standard high-street loan. If businesses were aware of their options then it might help them to seek alternative lenders or products that would better suit their needs, and make it easier for them to access appropriate finance that will help them fulfil their growth ambitions.”

Raising awareness of alternative finance options is the key to unlocking the full potential of business growth right across the spectrum, and, although, as Allan goes on to assert, this “largely falls to the industry itself to promote [its] services,” the government also has a major part to play as well, and indeed this is beginning happen.

Chair of P2PFA, Christine Farnish continued on to say that “2015 will be another important year for our industry. The Government has agreed that peer-to-peer lending should become part of the ISA tax-wrapper, a decision we warmly welcome. Our strong view is that Government should establish a new ‘Lending ISA’ category to enable consumers to understand the difference between peer-to-peer lending, cash savings and stocks and shares investments.”

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