Alternative lending solutions to solve declining small business loans

By Emma Olsson | 22 January 2020

Small business loans and overdraft facilities provided by big banks are on the decline according to recent figures published by UK Finance. The report, dated January 17, shows that while London lending fell by less than three percent between September 2014 and September 2019, in the North West the decrease neared 16 percent.

According to Rob Straathof, chief executive officer at business lending company Liberis, small businesses outside of London can thrive from ease of access to loans and a streamlined financing process.

“We’re very different from most lending businesses by integrating with big partners or with SME partners I would say, and that enables our distribution network to be far smoother than the traditional applications for lending,” says Straathof.

“The key point that we’re really strong at is we provide instant access to finance to small businesses, so for most of our small businesses they don’t even have to go through any application process because we already pre-approved them for finance.”

The Bank of England’s latest Credit Conditions Survey, dated October 2019, found that banks expecting to increase lending over the next three-month period dropped to -13.5 percent, the lowest level since 2009. This increasingly hostile lending environment places the UK’s small businesses in a precarious situation. According to UK Finance’s findings, the uncertainty of Brexit, depreciation of the pound, and a widening trade deficit put the UK in a less favourable position than the rest of the world.

“The Bank of England show a consistent trend that banks and financial institutions are reducing the amount of lending year on year since 2011 to those small businesses. So the small business that you have to think of is the corner shop, the grocery store, the restaurants that might have just started up in Birmingham or the North of England, the bars that have a tough time given the demographic changes that are happening. We are here for the small businesses that actually make up 70 percent of the UK economy.”

Liberis announced today that £32m in funding has just been secured in its largest equity capital fundraise to date.

A move to online retail also threatens businesses that have previously operated primarily on the high street, though Straathof suggests that the future promises better integration between online and offline sides of business.

“The landscape has changed significantly with more and more businesses not seeing online as their sole channel, but moving more of their business to an online place; that could be Amazon or eBay or the likes of aggregator sites, but it could also be their own website,” says Straathof.

“If you look at the stats you see online shopping increase steadily year on year. And we see the same with our customers … if you look at hair and beauty salons, a lot of their bookings are now coming through online booking platforms, but the customers are still offline of course.”

According to Straathof, online aggregators are not inherently destructive to small businesses. Rather, they provide an additional platform for customers to engage with.

“It’s highly complementary. Even if somebody will be trading 40 percent through an online aggregator and 60 percent online, we’ll take into account all those payments together, and we’ll make our assessment on the basis that they’re someone’s combined transactions. And great new initiatives like Open Banking enable us to provide a holistic view of the company to make those lending decisions.”

“We look at the underlying customer transactions that a small business does in combination with pulling all the advanced data from credit bureaus to open banking through proprietary data access that we have with our partners. We pull all that data together and it doesn’t matter to us whether it’s an online business or offline business. We assess all that data independently and make an assessment of the credit risk or the credit quality of the customer, and provide them with required funding,” says Straathof.  

“We’ll double down on our existing focus, which is we’ll double down on our partnerships, trying to enable many more partners to integrate with us and provide their small business customers with the opportunity to get instant access to funding,” says Straathof of the latest funding.

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