Discouraged demand and SME advice gap take the limelight at alternative finance industry roundtable

Funding Options and OakNorth join banks and policymakers to discuss the SME funding gap.

Discouraged SME demand for borrowing was a core theme at an alternative finance industry roundtable this morning, organised by Funding Options and attended by key decision makers including HM Treasury, HSBC, Nesta, OakNorth and the Federation of Small Businesses.

Ryan Edwards-Pritchard, managing director of Funding Options, told attendees how he still sees discouraged demand as a core challenge affecting small businesses, and a problem for the alternative finance industry.

“Because after they’ve been discouraged from applying, how do you identify them?” Edwards-Pritchard asked.

While banks claim 80% of small business loans are approved, that fails to explain the high rise of alternative lenders, like iwoca which this morning reported lending of over £74m in Q4 2018.

Richard Davies, TSB's SME Banking Director, agreed that he sees “a lot of the [SME] market, two-thirds, not actively looking to borrow… I think that’s too high.”

iwoca CEO and founder Christoph Rieche, who wasn’t in attendance, told AltFi earlier this week “[Banks] have killed the demand in many ways, which means that the 80% that they approve is probably true, but they have pre-filtered the people that get to that stage.”

“Long story short I think there's a lot of discouragement happening, and beyond the discouragement there's certainly a complete lack of encouragement to proactively speak about credits in branch and in the marketing campaigns—the marketing campaigns that you see are more public eye pleasers.”

Competition Remedies fund criticised

The RBS Banking Competition Remedies fund also came under fire.

Valentina Kristensen, director of growth and communications at OakNorth, called it out for failing to support lending to SMEs.

“Just £40m of a £775m fund going to support lending, feels like a total mismatch, that there’s so much funding for fixing the current account, and so little for lending.”

Metro Bank, Starling Bank and Tide/ClearBank were awarded £280m from the fund in February, the lion’s share, to increase current account competition among SME banking providers.

“Businesses aren’t that unhappy with their current account,” said Kristensen

The “advice gap” for small businesses was also highlighted by Mark Chidley, a member of the Financial Services Consumer Panel and a financial services consultant, who said that since “bank advice disappeared 60 years ago” nothing had replaced it, despite business owners still assuming their banks offered advice.

It wasn’t all doom and gloom however, Emma Jones, the founder of Enterprise Nation, said overall small businesses were “much more optimistic” and she praised the fact that there’s “more support for small businesses coming from the Treasury than No.10 at the moment”.