When a tree falls new growth follows
Members of the National Association of Commercial Finance Brokers (NACFB) generated almost £9 billion of new lending facilities in 2012, including a 100 per cent increase in leasing and asset finance.
But there was also bad news as the biggest player in the market, ING, withdrew at the end of October. The resulting £1.2-billion funding gap has hit a sector where the NACFB was expecting strong growth.
At a recent NACFB asset finance seminar, the funding gap was described, unexpectedly, as “a positive thing”. Positive, because when a tree falls in a forest, it’s the small plants that flourish in the sunlight.
For example, Aldermore has doubled the number of brokers it works with since the end of October 2012 and Investec has shown a similar expansion. And that has happened very quickly.
The overall “flavour” of the market, then, is changing. If the removal of one large funder leaves room for lots of smaller funders to expand into, the result is more choice and increased competition. Increased competition inspires development and innovation.
There are some very innovative lenders out there. Shadow Business Minister Lord Mitchell has named the online marketplace Funding Circle as just one example of the lender of the future. Speaking at the NACFB seminar, he talked in forthright terms about the poor health of the banking model – just the day before RBS’s £5.2 billion losses hit the headlines – saying banks must innovate or become unviable.
When a tree falls in a forest, it’s the small plants that flourish in the sunlight
The banks are lending, but the money isn’t being spread around enough. They are favouring those businesses that fulfil the most rigorous criteria, splitting the market in two – the haves and the have-nots.
And yet small-business owners simply aren’t helping themselves. They are not taking advantage of the opportunities offered by the wealth of smaller lenders.
This isn’t a matter of smaller alternative funders throwing an advertising budget together. It’s a matter of grass-roots awareness and the NACFB is seeking to get government support for this through the Business Bank.
According to figures quoted by the Department for Business Innovation & Skills, some 80 per cent of small businesses start thinking about sourcing funding only three to four days before the money is needed.
Generally speaking, busy owners of small and medium-sized enterprises (SMEs) spend less than an hour researching their options and end up dealing with their usual bank.
That helps to explain how 85 per cent of lending last year was through the same big four banks, (arguably just a big two in Scotland and Northern England).
All of which leads to the conclusion that what we have is not so much a funding-gap problem as a perception problem.
If the first step a business owner takes is to solicit the services of a commercial broker, they’ll benefit from the aggressive, competitive lending that’s on offer right now.