What are the strategic priorities for B2B lenders?

AltFi and kennek interviewed over 40 B2B lenders, finding the overwhelming majority are optimistic, technology-minded and cognizant of the challenges ahead.

This is an excerpt from AltFi Research’s Alternative Lending During A Downturn: Strategic Insights From B2B Lenders, which is available for free here.

Despite the prevailing economic narrative that times are hard and getting harder, among alternative lenders, optimism is shining through.

That’s the overwhelming takeaway from AltFi and kennek’s C-suite Survey 2023, an extensive piece of research that saw over 40 B2B lenders surveyed and interviewed on topics ranging from finding attractive borrowers to access to capital.

Alternative and specialist B2B lenders like these in the UK have good reason to be positive. Last year they accounted for 55 per cent of the overall UK business lending market with £35.5bn in loans, according to the British Business Bank, pushing incumbent lender banks into the minority.

“There is stress in the system, of course there is, but I’m positively surprised about the optimism,” said Xavier De Pauw, co-CEO and founder of kennek, who conducted many of the survey’s interviews.

As well as palpable optimism, other key takeaways from the survey included an increasing selectiveness among institutional investors, the growing challenge of supporting borrowers during a downturn and how imperative technology has become for lenders of all shapes and sizes. 

Among those we spoke to for this survey, there was a nearly equal split between pure business lenders, names like Allica Bank, Tranch and ThinCats, and more specialist bridge and development lenders from the property sector like Sancus, Clearwell Capital and Alpha Property Lending.

Lenders are optimistic for growth

In what many might see as a surprising result, lenders, in general, were positive and reported seeing more opportunities than challenges ahead.

Despite the last few years seeing a steady succession of crises, including Brexit, the Covid-19 pandemic and the UK’s mini-budget under former Prime Minster Liz Truss, the outcome of these events hasn’t dampened the ambitions of the UK’s alternative lenders.

Of those we spoke to, an overwhelming majority (71 per cent) described themselves as optimistic about the lending landscape in 2023. Furthermore, 77 per cent said they expect the level and volume of their lending to increase this year compared to 2022.

“We see opportunities rather than challenges,” said Ravi Anand, managing director of ThinCats, the mid-sized UK business lender, and one of the respondents. “We have not changed our risk appetite in that we were and we still are focused on good cash-generative businesses. In some ways, the stresses are there already and so it is clearer to underwrite.”

Similar views were shared by those in the property lending space. Richard Whitehouse, managing director at bridging and development lender Sancus said: “The market finished Q4 2022 in a state of anxiety, literally, it was like someone had switched the lights off in Q4. But since mid-January, we are extremely busy, with more and better deal flow than last year.”

That optimism is filtering through to the business decisions of lenders, with nearly half of those we spoke to (47 per cent) planning on increasing their headcount in 2023.

In fact, of the over 40 lenders we spoke to, just 24 per cent said they expected their level and volume of lending to either decrease or remain unchanged year-on-year. And the primary reason for stalling or declining lending? 

That both businesses and lenders had become more conservative in when to borrow and when to lend, although opportunities remain for those prepared to be selective...

Want to keep going? Read the full feature in AltFi Research's Alternative Lending During A Downturn: Strategic Insights From B2B Lenders report, out now!