A new survey this week predicts a marked decrease in bank lending to businesses in 2012, but the figures arguably only tell half the story. Alternative SME lending services such as invoice finance have emerged as mainstream finance products, meeting demand that many banks have not wanted to.
A survey from Ernst & Young Item Club has forecast an almost 7% drop in bank lending to £419 billion in 2012, with write-offs on business loans increasing by nearly 2%. While these figures paint a somewhat negative picture, there is reason to be more positive. The reasons behind the decrease in SME lending from the big banks are well documented (and equally well contested) but, at the same time, the alternative small business lending sector has grown steadily.
Healthy small businesses are increasingly looking to invoice finance, asset finance and other forms of alternative SME finance to maintain cash flow in the face of big bank reluctance, whether in the form of higher lending rates, unfavourable terms or a refusal to lend. As alternative SME credit facilities become increasingly established, they are finding a regular spot among the mainstream lending product range: businesses aren’t giving up on bank SME lending altogether, they are combining it the likes of invoice discounting and factoring services that come with better terms and greater flexibility.
Interestingly, the Ernst & Young Item Club research attacks the government’s efforts to bolster SME lending, including the national loan guarantee scheme. While this is an increasingly popular sport, there is perhaps room to suggest that the time has come for small businesses to stop looking solely to the government and the major banks for SME lending services. An alternative small business credit industry has emerged to help an increasing number of businesses and the time has come for more businesses to take advantage of these financial products.
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