The UK’s alternative finance industry is experiencing a period of retrenchment as major players pull back from unsecured lending. While some analysts see this as a positive step to lenders focusing in on their specialist or niche sectors, this doesn’t help the UK’s 5.7 million small businesses, many of whom have no other option than unsecured lending funding options.
Statistics show that for the UK, to keep performing strongly, it is vital that small and medium-sized enterprises (SMEs) do well. SMEs are responsible for most of the employment opportunities within the economy, but too often, access to finance is a stumbling block for those that want to grow and expand their operations.
Fewer options for unsecured loans inevitably leads to less choice and higher rates. This growing trend of lenders wishing to specialise and become the leader in one specialist area of business financing is a sign that the alternative finance landscape is maturing and players are realising that they can’t be good at everything. Where they can’t become a dominant player they are giving up.
Unsecured loans are riskier than secured loans because there is a far smaller chance of the lender getting their money back if the borrower defaults. As a result, unsecured lending tends to offer higher rates. Commenting on P2Pfinance news Conrad Ford, chief executive of Funding Options, said “The difference between unsecured and secured lending tends to be blurred. For example, within unsecured lending, a large proportion is secured by personal guarantees. People use binary terms but, in reality, when people talk about secured business lending they mean it is secured on something within the business, whereas unsecured lending is often secured on something outside of the business.”
Market conditions in 2018 could present exciting opportunities for SMEs with bold ambitions and plans for growth, however, they need an encompassing lending industry willing to support them in that ambition.