The fact there’s a whole week dedicated to fintech shows just how fast the UK market has grown and how much interest it’s attracted, not only from new start-ups but from established brands moving into the space – think Amazon Lending. And then there’s the investors.
In our corner of the fintech scene, the continued rise of alternative finance was cemented with a summer of series A, B and C funding announcements with the likes of Seedrs and Crowdcube announcing million dollar investments to move their businesses forward. This is great news for the alternative finance market as a whole, which is currently predicted to grow in Europe and the UK beyond $7bn in 2015, up from $2.5bn in 2014.
According to finance supermarket, Funding Options, SMEs in the UK alone are now using £76 billion worth of alternative finance – a 43% rise on last year’s total of £53bn. This is 46% of the value of traditional term loans and overdrafts, which have fallen to £163bn according to Bank of England figures, representing a fall of 5% from £172bn a year ago, and 17% from £197bn four years ago.
No wonder investment in the sector keeps on coming. But we’re still only scratching the surface. Something that is recognised by the government, who since May’s election have announced a raft of measures to help small businesses access the finance they need to grow.
The latest in these developments is the minister for the Cabinet Office, Matt Hancock, announcing his intentions to increase small business spend during the next five years. Between 2013 and 2014, the government worked with SMEs using £11.4 billion worth of investment, equal to 26 per cent of the central government’s budget. Hancock intends to spend an extra £3 billion a year by 2020, increasing government spending with SMEs by a third.
A good starting point would be for the British Business Bank to finalise its ‘neutral finance platform, ’ which one year after the government pledged to make high-street banks refer small businesses turned down for a loan to alternative finance providers is still in the planning stages. The scheme, when it finally launches, will help raise awareness for the other forms of finance out there – one of the biggest blockers for small businesses accessing, or even applying, for working capital.
Don’t forget the middle-men
While there’s been a big push for encouraging investment in start-ups, it’s important not to forget the ‘medium’ guys, who, according to the CBI, generate nearly a quarter of private sector revenue and make up 16% of total employment. They are often forgotten amongst the more headline-grabbing start-up support, or the more lucrative opportunities that traditional lenders see in larger enterprises, but represent huge opportunity for the economy – as well as the alternative finance sector.
This is where e-lenders come into their own, with automated decision-making technologies using real-time data on a business and its directors to provide a loan offer bespoke to each business. This means lending to medium-sized businesses is just as viable as bigger businesses because it doesn’t cost a fortune in underwriters, face to face meetings, document processing (the list goes on) – and good medium-sized businesses can receive a loan offer that rewards their growth to date.
As the fintech drive rolls on, innovation is on every corner, but in particular in the business lending sector which is still predominantly reliant on outdated underwriting approaches that even some alternative lenders still use to approve loans – even if the platform from which they do it is revolutionary.
That’s one of the reasons why we’re seeing the first funding event dedicated to small businesses coming to London in February next year and why we’ll continue to see big investments and changes to the lending landscape over the next 12 months. The industry might not be as sexy as Apple Pay, but it’s the industry that will be funding the Apple Pays of the future.